ECON 1000 Chapter 15: Notes - Chapter 15

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Steven Edwards

Document Summary

The prisoners" dilemma - two prisoners (art and bob) have been caught committing a petty crime. Each held in separate cell and cannot communicate with each other; told that both are suspected of committing a more serious crime. If one of them confesses, he will get 1-year sentence for cooperating while accomplice gets 10-year sentence for both crimes. If both confess to more serious crime, each receive 3 years in jail for both crimes. If neither confesses, each receives 2-year sentence for minor crime only. Art and bob each have two possible actions: confess to the larger crime or deny having committed the larger crime. Application is a duopoly - market with only 2 producers competing; both can meet the market demand at least cost. Collusive agreement agreement between firms to restrict output, raise price, and increase profits; illegal but done in secret so firms can cooperate as cartel (makes industry a monopoly)