1. 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. The table below represents the choices available to Mary and Raj. Use it to answer the questions below.
Mary
Work Independently Cooperate and Lower Output
Raj Work Independently Raj: $100
Mary: $100 Raj: $200
Mary: $0
Cooperate and Lower Output Raj: $0
Mary: $200 Raj: $150
Mary: $150
a. What is the most profitable choice for Raj if he is sure that Mary will cooperate?
b. If Mary thinks Raj will cheat, what should Mary do and why?
c. What is the prisoner’s dilemma result?
d. What is the preferred choice if they could ensure cooperation?