Exam 12: Game Theory

Use the following to answer question: Table 12.32 -(Table 12.32) Two firms have formed an agreement to restrict output. They are playing an infinitely repeated game in which output decisions must be made every period. Both firms are using a grim trigger strategy. At what value of d (discount rate) would Firm A be indifferent about keeping the agreement or cheating on the agreement?

Use the following to answer question: Table 12.26 -(Table 12.26) payoffs are in thousands of dollars.

Suppose that Ben and Tim are playing a finitely repeated flag game. The game starts with 7 flags in the ground, and the players take turns removing the flags. A player must remove either 1, 2, or 3 flags per turn. The player who takes the last flag out of the ground, whether it is by itself or in a group, wins the game. Assume that Ben decides first on how many flags to remove. How many flags should Ben remove on his first turn to guarantee that he will win the game? Use backward induction.

Use the following to answer question: Table 12.30 -(Table 12.30)

Use the following to answer question: Table 12.8 -(Table 12.8) Payoffs represent profits measured in thousands of dollars. Which of the following outcomes represent(s) a Nash equilibrium?

Use the following to answer question: Table 12.3 -(Table 12.3) The payoffs represent profits. If Cape North and Imperial both choose their dominated strategy, Cape North will earn a profit of _____ and Imperial will earn a profit of _____.

Use the following to answer questions 26-28: Table 12.16 -(Table 12.16) The payoffs represent profits measured in thousands of dollars. In this infinitely repeated game, Firm A and Firm B are both using grim trigger strategies; they agree to charge a high price in period 1. If Firm A charges a high price for all periods, what is its expected payoff? Assume that d = 0.9.

The following game:

Which of the following statements is FALSE?

Use the following to answer question: Table 12.4 -(Table 12.4) Payoffs are profits in thousands of dollars. Which of the following statements is TRUE?

Big Earth and District 13 are two producers of neodymium, a rare earth. If they agree to restrict output, each firm earns $100 million per year. If both firms expand output, each firm earns $50 million per year. If one firm restricts output and the other firm expands output, the firm that expands output earns $150 million per year and the other firm earns only $30 million per year. Assume that Big Earth and District 13 will compete infinitely, with each firm following a grim trigger strategy. Which of the following statements is TRUE?

Use the following to answer question: Figure 12.3 -(Figure 12.3) Which figure corresponds to the following normal-form game?

Consider two players in the following game. For what values of the discount rate would a grim trigger strategy ensure cooperation between the two players if they play forever?

Use the following to answer question: Table 12.10 -(Table 12.10) The table shows the payoffs from the game rock-paper-scissors. Which of the following statements is (are) TRUE?

Consider two players with the following decision tree: What is the Nash equilibrium?

Use the following to answer questions 19-20: Table 12.12 -(Table 12.12) The payoffs are profits in millions of dollars. If Firm 1 follows a maximin strategy, the outcome of this game is:

At one time, tobacco companies vigorously fought lawsuits by their current and former customers, even though the cost of defending the lawsuits exceeded the amount of money demanded by the smokers. What type of strategic behavior were tobacco companies using?

The lesson from Dr. Strangelove is that:

Use the following to answer question: Figure 12.1 -(Figure 12.1) The Nash equilibrium of this game is:

Use the following to answer question: Table 12.6 -(Table 12.6) Payoffs represent profits in thousands. What is the Nash equilibrium?