In a repeated prisoners' dilemma, cooperation between firms is more likely when firms:
Correct answer: B. Can observe behaviour and punish future cheating
- A. Interact only once and never meet again
- B. Can observe behaviour and punish future cheating
- C. Have no information about rivals' actions
- D. Always choose the lowest possible price independently
Explanation
Repeated interaction allows firms to reward cooperation and punish defection in later rounds. This future consequence can support cooperation even when a single-round game encourages each firm to act narrowly in its own interest.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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