1. Explain how the Prisoner’s Dilemma can be useful in analyzing the behavior of firms toward one another. In particular, using a 2 x 2 table like the one we developed in class, explain why the strategic interaction between two companies that can charge either a high price or a low price may result in lower profits for both if they are acting competitively. Explain, again using the table, why there may be a tendency for firms to try to collude. Finally, explain why it may hard for firms to remain in the equilibrium in which they both collude (hint: what is the incentive for each player in the collusion equilibrium?) 2. Consider the determinants of the rate of profit. We have discussed a variety of strategies capitalists might employ to raise the rate of profit. Does using these strategies to increase r necessarily hurt workers? If not, which strategies hurt workers and which do not? 3. Write out the complete expression for profit you have learned, defining all the terms you use. Also write the expression for the profit rate. Describe four strategies to increase total profit as a way to increase the profit rate
1. Explain how the Prisoner’s Dilemma can be useful in analyzing the behavior of firms toward one another. In particular, using a 2 x 2 table like the one we developed in class, explain why the strategic interaction between two companies that can charge either a high price or a low price may result in lower profits for both if they are acting competitively. Explain, again using the table, why there may be a tendency for firms to try to collude. Finally, explain why it may hard for firms to remain in the equilibrium in which they both collude (hint: what is the incentive for each player in the collusion equilibrium?)
2. Consider the determinants of the rate of profit. We have discussed a variety of strategies capitalists might employ to raise the rate of profit. Does using these strategies to increase r necessarily hurt workers? If not, which strategies hurt workers and which do not?
3. Write out the complete expression for profit you have learned, defining all the terms you use. Also write the expression for the profit rate. Describe four strategies to increase total profit as a way to increase the profit rate
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