What is a prisoners dilemma, Microeconomics

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1. Ayanna grows herbs. Last year she grew 2,000 pounds of herbs in a year while using 250 square feet of land and 1 worker. This year she doubled her land to 500 square feet, doubled her workers to 2, and grew 4,500 pounds of herbs. She sells her rare, organic herbs for $50 a pound. She pays her a worker $25,000 a year and rents her land for $100 per square foot for a year. These are her only costs.

a.  What was Ayanna's total cost last year and this year?

b.  What was Ayanna's average total cost last year and this year?

c.  Did Ayanna experience economies or diseconomies of scale?

2. a. What is a prisoner's dilemma?

b. Why would a firm in a monopolistically competitive industry advertise?

 


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