alleryStart learning →The scenario where the gains from cooperating exceed the rewards from pursuing self-interest is the:
AParadox of thrift
BPrisoner's dilemma
CKinked demand curve
DLaw of demand
Answer & Solution
Correct answer: B. Prisoner's dilemma
1. Game theory supplies the standard model of oligopoly behaviour.
2. The prisoner's dilemma is a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest.
3. Each firm is nonetheless tempted to defect from the agreement.
4. That tension is why cartels are unstable even when collusion would pay.
_Source: OpenStax Principles of Microeconomics for AP(R) Courses 2e (CC BY 4.0), Ch 10 'Monopolistic Competition and Oligopoly', sections 10.1-10.2_
Keep practising Monopolistic Competition and Oligopoly
Browse all Monopolistic Competition and Oligopoly questions for AP Microeconomics, or explore more Economics topics.
Related questions
Complete the oligopoly rulesTrue or false: imperfect competitionPerfect competition or oligopoly?Match each oligopoly termStop on the market structureCompared with a cartel, the Boeing and Airbus duopoly is held together by:The prisoner's dilemma applies to oligopoly because firms face a choice between:Monopolistic competition and oligopoly are grouped together because both are: