Question 1

If both players in a game have dominant strategies, we say that the game has:

Accepted Answer

A)  a constant sum. 
B)  a nonconstant sum. 
C)  independence of irrelevant alternatives. 
D)  an equilibrium in dominant strategies. 
A)  a constant sum. 
B)  a nonconstant sum. 
C)  independence of irrelevant alternatives. 
D)  an equilibrium in dominant strategies.

Question 2

Dale and Terry are racing automobiles around a track. Currently, Terry is in the lead. However, Dale has a faster car and is just behind Terry. The racers' strategies and pay-offs are presented in the table below.   
Does either player have a dominant strategy? Does the game have a Nash equilibrium? What is the maximin strategy of each player in the game?

Accepted Answer

Neither player has a dominant

Question 3

Scenario 13.6
Consider the following game. Payoffs are in millions of dollars.  
-In the game in Scenario 13.6, what is the Nash equilibrium?

Accepted Answer

A)  The strategy pair associated with -$100, -$1. 
B)  The strategy pair associated with $2, -$0.5. 
C)  The strategy pair associated with $1, -$1. 
D)  The strategy pair associated with -$0.5, -$0.5. 
E)  There is no Nash equilibrium in pure strategies. 
A)  The strategy pair associated with -$100, -$1. 
B)  The strategy pair associated with $2, -$0.5. 
C)  The strategy pair associated with $1, -$1. 
D)  The strategy pair associated with -$0.5, -$0.5. 
E)  There is no Nash equilibrium in pure strategies.

Question 4

In the game in Scenario 13.5,

Accepted Answer

A)  there is one equilibrium: for both to expand West. 
B)  there is one equilibrium: for both to expand South. 
C)  there are two equilibria: either can expand in the West, and the other expands in the South. 
D)  there is only a mixed strategies equilibrium. 
E)  all four outcomes are equilibria. 
A)  there is one equilibrium: for both to expand West. 
B)  there is one equilibrium: for both to expand South. 
C)  there are two equilibria: either can expand in the West, and the other expands in the South. 
D)  there is only a mixed strategies equilibrium. 
E)  all four outcomes are equilibria.

Question 5

An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by a

Accepted Answer

A)  cooperative game. 
B)  Prisoners' Dilemma game. 
C)  Battle of the Sexes game. 
D)  repeated game. 
E)  sequential game. 
A)  cooperative game. 
B)  Prisoners' Dilemma game. 
C)  Battle of the Sexes game. 
D)  repeated game. 
E)  sequential game.

Question 6

For infinitely repeated games in which the players follow a tit-for-tat strategy, which one of the following outcomes is NOT possible?

Accepted Answer

A)  The players cooperate with one another until someone decides to not cooperate, and then the other players will not cooperate for some period of time. 
B)  There can be dominant strategies. 
C)  If the information about another player's action is limited, then some cooperative actions may be incorrectly interpretted as "not cooperate." 
D)  All of the above are possible outcomes. 
A)  The players cooperate with one another until someone decides to not cooperate, and then the other players will not cooperate for some period of time. 
B)  There can be dominant strategies. 
C)  If the information about another player's action is limited, then some cooperative actions may be incorrectly interpretted as "not cooperate." 
D)  All of the above are possible outcomes.

Question 7

Scenario 13.16
Consider the pricing game below:  
-Refer to Scenario 13.16. If Gooi can move first, and Ici wants to realize the ($150, $300) payoff,

Accepted Answer

A)  all it has to do is threaten to buy yogurt machines, no matter what Gooi does. 
B)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $50. 
C)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $150. 
D)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $300. 
E)  it has to move before Gooi; there is no other way. 
A)  all it has to do is threaten to buy yogurt machines, no matter what Gooi does. 
B)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $50. 
C)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $150. 
D)  it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $300. 
E)  it has to move before Gooi; there is no other way.

Question 8

Scenario 13.12
Consider the game below:  
-Playing the game in Scenario 13.12 by using a maximin strategy would

Accepted Answer

A)  not change the equilibrium from the equilibrium of the original game. 
B)  change the equilibrium to (R1,C2). 
C)  change the equilibrium to (R2,C1) if R moved first. 
D)  change the equilibrium to (R2,C1) if C moved first. 
E)  change the equilibrium to (R2,C2). 
A)  not change the equilibrium from the equilibrium of the original game. 
B)  change the equilibrium to (R1,C2). 
C)  change the equilibrium to (R2,C1) if R moved first. 
D)  change the equilibrium to (R2,C1) if C moved first. 
E)  change the equilibrium to (R2,C2).

Question 9

G.C. Donovan Company is a large pharmaceutical company located in the U.S., but with worldwide sales. Donovan has recently developed two new medications that have been licensed for sale in European Union countries. One medication is an over-the-counter cold preparation that effectively eliminates all cold symptoms, while the other is an antibiotic that is effective against drug resistant bacteria. A European firm, Demtech Limited, has developed drugs that are similar to Donovan's and will be ready for the European market at approximately the same time. Liability concerns make it unlikely that either firm will choose to market both new drugs at this time. Both firms do plan to market one of the drugs this year.
Donovan's managers consider their own lack of reputation among European physicians to be an important obstacle in the antibiotic market. Consequently, Donovan feels more comfortable marketing the cold preparation. Demtech, on the other hand, has an excellent reputation among physicians but little experience in over-the-counter drugs so that Demtech's competitive advantage is with the antibiotic. Should Demtech choose to market the cold remedy, it believes that its sales will increase if Donovan also enters the cold remedy market and advertises heavily. Similarly, Donovan anticipates that its sales in the antibiotic market would be enhanced if Demtech produces antibiotics, given Demtech's excellent reputation among physicians. In short, each firm believes that there are circumstances under which participation by the other firm will complement rather than compete with the firm's own sales. Profits in millions of dollars are given in the payoff matrix below.   
a. Given the table above, does either firm have a dominant strategy? Is there a Nash equilibrium? (Explain the difference between a Nash equilibrium and a dominant strategy.)
b. Pharmaceutical firms within the EU are attempting to organize a risk pool that would share liability risks for new drugs. Since Donovan and Demtech are among the largest pharmaceutical companies operating in Europe, the benefits of the risk pool depend upon the participation of the other firm. Increased profits achieved through reduced risk liability (measured in millions of dollars) are shown in the payoff matrix below.   
Does either firm have an incentive to use participation in the risk pool as a bargaining device in the drug-marketing decision? If so, what would be the nature of the bargain? How credible is the firm's bargaining position? What could be done to make the bargaining position more credible?

Accepted Answer

a.
Demtech has a dominant strategy in th

Question 10

In a two-person bargaining situation it is

Accepted Answer

A)  always in the best interests of both players for each player to be as flexible as possible, and to have as many options as possible. 
B)  always in the best interest of the player that moves first to be as flexible as possible, and to have as many options as possible. 
C)  often in the best interest of players to pretend a game is noncooperative when it is not, and vice versa. 
D)  often in the best interest of players to cut off some of their own options in order to make the other player's threats not credible. 
E)  often in the best interest of players to cut off some of their own options in order to make their own threats credible. 
A)  always in the best interests of both players for each player to be as flexible as possible, and to have as many options as possible. 
B)  always in the best interest of the player that moves first to be as flexible as possible, and to have as many options as possible. 
C)  often in the best interest of players to pretend a game is noncooperative when it is not, and vice versa. 
D)  often in the best interest of players to cut off some of their own options in order to make the other player's threats not credible. 
E)  often in the best interest of players to cut off some of their own options in order to make their own threats credible.

Question 11

Suppose a player in a game has a dominant strategy, but they threaten to take another action. Can this threat be credible?

Accepted Answer

A)  No, such threats are never credible to other rational players. 
B)  No, if the player has a dominant strategy, they must take this action. 
C)  Yes, if they can link the current game to another bargaining problem in which their joint strategy for the combined games is rational. 
D)  Yes, dominant strategies may not always yield the highest payoffs. 
A)  No, such threats are never credible to other rational players. 
B)  No, if the player has a dominant strategy, they must take this action. 
C)  Yes, if they can link the current game to another bargaining problem in which their joint strategy for the combined games is rational. 
D)  Yes, dominant strategies may not always yield the highest payoffs.

Question 12

Consider the Battle of the Sexes game:
 
Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case?

Accepted Answer

A)  Yes, both players select wrestling 
B)  Yes, both players select opera 
C)  No, both players face the minimum payoff (0) under both actions. 
D)  We do not have enough information to answer this question. 
A)  Yes, both players select wrestling 
B)  Yes, both players select opera 
C)  No, both players face the minimum payoff (0) under both actions. 
D)  We do not have enough information to answer this question.

Question 13

La Tortilla is the only producer of tortillas in Santa Teresa. The firm produces 10,000 tortillas each day and has the capacity to increase production to 100,000 tortillas each day. La Tortilla has made a large profit for years, but no other firm has chosen to compete in the Santa Teresa tortilla market. La Tortilla has been able to deter entry because if other firms were to enter the market it would greatly step-up production and reduce price.

Accepted Answer

A)  La Tortilla's behavior is inconsistent with economic theory. 
B)  La Tortilla has been successful because of its credible threat. 
C)  La Tortilla behaves like a Stackelberg firm. 
D)  La Tortilla must have other barriers to entry to protect its monopoly power. 
A)  La Tortilla's behavior is inconsistent with economic theory. 
B)  La Tortilla has been successful because of its credible threat. 
C)  La Tortilla behaves like a Stackelberg firm. 
D)  La Tortilla must have other barriers to entry to protect its monopoly power.

Question 14

Scenario 13.11
Consider the game below:  
-In the game in Scenario 13.11, equilibrium is

Accepted Answer

A)  R1, C1. 
B)  R1, C2. 
C)  R2, C1. 
D)  R2, C2. 
E)  a mixed strategy based on all four pure strategies. 
A)  R1, C1. 
B)  R1, C2. 
C)  R2, C1. 
D)  R2, C2. 
E)  a mixed strategy based on all four pure strategies.

Question 15

Joe's Imports is currently the only dealer for imported Sporto autos on the East Coast, but Fred's Autos may enter the import market and start selling Sporto cars in the East Coast market during the coming year. Joe's Imports can pay the Sporto manufacturer for exclusive East Coast marketing rights, which would deter the entry of Fred's Autos into the market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes of the sequential entry game are summarized in the following matrix:
 
What is the equilibrium outcome from this sequential entry game?

Accepted Answer

A)  Joe's Imports buys the marketing rights, and Fred's Autos cannot enter the market. 
B)  Joe's Imports buys the marketing rights, and Fred's Autos enters the market. 
C)  Joe's Imports does not buy the marketing rights, and Fred's Autos enters the market. 
D)  Joe's Imports does not buy the marketing rights, but Fred's Autos does not enter the market. 
A)  Joe's Imports buys the marketing rights, and Fred's Autos cannot enter the market. 
B)  Joe's Imports buys the marketing rights, and Fred's Autos enters the market. 
C)  Joe's Imports does not buy the marketing rights, and Fred's Autos enters the market. 
D)  Joe's Imports does not buy the marketing rights, but Fred's Autos does not enter the market.

Question 16

The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that

Accepted Answer

A)  a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium. 
B)  a pure-strategy Nash equilibrium is a special case of a dominant-strategy equilibrium. 
C)  they are the same. 
D)  there may not be a dominant-strategy equilibrium, but there always is a pure-strategy Nash equilibrium. 
E)  they are mutually exclusive and exhaustive, in that a dominant-strategy equilibrium is the same thing as a mixed-strategy Nash equilibrium. 
A)  a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium. 
B)  a pure-strategy Nash equilibrium is a special case of a dominant-strategy equilibrium. 
C)  they are the same. 
D)  there may not be a dominant-strategy equilibrium, but there always is a pure-strategy Nash equilibrium. 
E)  they are mutually exclusive and exhaustive, in that a dominant-strategy equilibrium is the same thing as a mixed-strategy Nash equilibrium.

Question 17

Joanna has a credit card account with Card Bank. Card Bank's available strategies are to raise Joanna's credit card interest rate or do nothing. Joanna's available strategies are to transfer her Card Bank account balance to another creditor or do nothing. The strategy pay-offs are indicated below.   
Does either player have a dominant strategy? Does the game have any Nash equilibria? What is the maximin strategy of each player in the game?

Accepted Answer

Card Bank can always do at least as well

Question 18

What does it mean to say that a game is in "extensive form"?

Accepted Answer

A)  Strategies are described, rather than just numbered. 
B)  All payoffs are shown. 
C)  The game is presented as a matrix. 
D)  The game is presented as a decision tree. 
E)  The game is written out as often as the situation calls for it to be played. 
A)  Strategies are described, rather than just numbered. 
B)  All payoffs are shown. 
C)  The game is presented as a matrix. 
D)  The game is presented as a decision tree. 
E)  The game is written out as often as the situation calls for it to be played.

Question 19

Consider the following output-choice game for two firms:
 
What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?

Accepted Answer

A)  Zero 
B)  40 
C)  50 
D)  110 
A)  Zero 
B)  40 
C)  50 
D)  110

Question 20

Scenario 13.16
Consider the pricing game below:  
-Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be

Accepted Answer

A)  $150, $0. 
B)  $150, $300. 
C)  $400, $150. 
D)  $50, $50. 
E)  $650, $450. 
A)  $150, $0. 
B)  $150, $300. 
C)  $400, $150. 
D)  $50, $50. 
E)  $650, $450.

If both players in a game have dominant strategies, we say that the game has:

Scenario 13.6 Consider the following game. Payoffs are in millions of dollars. -In the game in Scenario 13.6, what is the Nash equilibrium?

In the game in Scenario 13.5,

An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by a

For infinitely repeated games in which the players follow a tit-for-tat strategy, which one of the following outcomes is NOT possible?

Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi can move first, and Ici wants to realize the ($150, $300) payoff,

Scenario 13.12 Consider the game below: -Playing the game in Scenario 13.12 by using a maximin strategy would

In a two-person bargaining situation it is

Suppose a player in a game has a dominant strategy, but they threaten to take another action. Can this threat be credible?

Consider the Battle of the Sexes game: Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case?

Scenario 13.11 Consider the game below: -In the game in Scenario 13.11, equilibrium is

The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that

What does it mean to say that a game is in "extensive form"?

Consider the following output-choice game for two firms: What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?

Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 13: Game Theory and Competitive Strategy

If both players in a game have dominant strategies, we say that the game has:

Scenario 13.6 Consider the following game. Payoffs are in millions of dollars. -In the game in Scenario 13.6, what is the Nash equilibrium?

In the game in Scenario 13.5,

An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by a

For infinitely repeated games in which the players follow a tit-for-tat strategy, which one of the following outcomes is NOT possible?

Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi can move first, and Ici wants to realize the ($150, $300) payoff,

Scenario 13.12 Consider the game below: -Playing the game in Scenario 13.12 by using a maximin strategy would

In a two-person bargaining situation it is

Suppose a player in a game has a dominant strategy, but they threaten to take another action. Can this threat be credible?

Consider the Battle of the Sexes game: Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case?

Scenario 13.11 Consider the game below: -In the game in Scenario 13.11, equilibrium is

The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that

What does it mean to say that a game is in "extensive form"?

Consider the following output-choice game for two firms: What is Firm 2's first-mover advantage in a sequential game relative to a simultaneous game?

Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi moves first, the payoff in equilibrium will be

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters