Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day)depends upon whether the other firm invests, as shown in the payoff matrix below.
Is this game a prisoner's dilemma?
A)Yes.
B)No.
C)It cannot be determined.
D)Only when both Firm A and Firm B invest.

Question

Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day)depends upon whether the other firm invests, as shown in the payoff matrix below.  
 Is this game a prisoner's dilemma?
A)Yes. 
B)No. 
C)It cannot be determined. 
D)Only when both Firm A and Firm B invest.

Quizplus · Accepted Answer

A prisoner's dilemma is a game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy. In this game, the payoffs when each firm plays its dominant strategy (don't invest)are higher than if each firm had played its dominated strategy (invest), so it is not a prisoner's dilemma.

Suppose Firm a and Firm B Are Considering Whether to Invest