Explain the prisoner's dilemma case in game theory and its relevance to the maximin criterion
The scenario is of two burglary suspects who are captured by the police and interrogated in separate rooms. Each suspect has two strategy options: to deny the charge or to confess. If both deny it, both go free, for the police have no strong evidence. But, if one confesses and the other does not, the silent prisoner can expect a very long prison term. The maximin solution, then, is for both to confess and receive the moderate sentence that this elicits. If they were permitted to act collusively, they both would end up with no prison terms.
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Use the above figure. If a commission regulates the above monopoly using fair-return (average cost pricing), then the industry's output will be ________ and the product's price will be ________
A) Q1; P1 B) Q2; P3 C) Q3; P2 D) Q4; P1