The Prisoner’s Dilemma

The prisoner’s dilemma is arguably the most famous example of game theory. It describes a situation (i.e. game) between two prisoners, who act in their own self-interest, which results in an inefficient outcome for both of them. In essence, the prisoner’s dilemma illustrates why it can be difficult to maintain cooperation […]

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Comparative Advantage and Trade

We live in a globalized world where virtually all countries interact and engage in trade. Most of them have various trade connections with a multitude of different countries. As a consequence, there is a significant amount of competition. This raises the question how smaller countries with relatively weak economies can […]

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Profit Maximization

In economics it is often assumed that companies try to maximize profit. That is, they try to maximize revenue while at the same time minimizing costs. In order to do that, firms need to look “at the margin”. That means, they have to keep an eye on changes in revenue (i.e. marginal […]

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Monopoly Power

A Monopoly is one of the four typical market structures. It describes a situation where a single firm (or individual) is the sole producer and seller of a product or service in an entire market. It is characterized through a lack of competition. As a result the monopolist has the ability to […]

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