Question

. Mary and Raj are the only two growers who provide organically grown corn to a local grocery store.
They know that if they cooperated and produced less corn, they could raise the price of the corn. If they
work independently, they will each earn $100. If they decide to work together and both lower their output,
they can each earn $150. If one person lowers output and the other does not, the person who lowers output
will earn $0 and the other person will capture the entire market and will earn $200.
Now you are required to answer the below questions: [8 Marks]
a. Find out the payoff matrix between Raj and Mary? (A = Work independently; B =
Cooperate and Lower Output.)
b. What is the best choice for Raj if he is sure that Mary will cooperate?
c. If Mary thinks Raj will cheat, what should Mary do and why?
d. What is the prisoner’s dilemma result?
e. What is the preferred choice if they could ensure cooperation?
f. Identify the Nash equilibrium of the game, if it exists

Answer 1

Answer:

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