Exam 18: Game Theory and Strategic Choices

A strategic plan is a:

Consider the collusion of Mom Wakeboards and Pop Surfboards. If the game is played repeatedly, and both Mom and Pop employ a Grim trigger strategy, the equilibrium will be:

Game theory is:

One problem associated with a situation that has good and bad equilibria is that:

(Figure: Payoff Matrix for Alex and Sybil) Use Figure: Payoff Matrix for Alex and Sybil. Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides how much frozen yogurt to produce for the following week. The figure shows the profit per week earned by their two firms. The Nash equilibrium in this situation is: ​

Use the table with data for Vlad and Assad to answer the question. If Assad charges $1, then Vlad should charge _____. If Assad charges $3, then Vlad should charge _____. $\text { Table: Profits for Vlad's and Assad's Cookie Companies }$ Assad charges \ 1 per cookie. Assad charges \ 3 per cookie. Vlad charges \ 1 per cookie. Vlad's profits =\ 2,000 Assad's profits =\ 2,000 Vlad's profits =\ 3,500 Assad's profits =\ 500 Vlad charges \ 3 per cookie. Vlad's profits =\ 500 Assad's profits =\ 3,500 Vlad's profits =\ 3,000 Assad's profits =\ 3,000

The science of making good decisions in situations involving strategic interactions is called:

Explain the difference between a coordination game and an anti-coordination game.

Suppose that Big & Tall and Short & Sweet are two clothing manufacturers and each chooses independently whether to advertise or not advertise. If neither advertises, each gets $100 million in profit; if both advertise, their profits are $50 million each; and if one advertises, while the other does not, the advertiser gets $150 million in profit, and the other gets $20 million in profit. What is the Nash equilibrium?

A Nash equilibrium is an equilibrium in which:

(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. If both firms follow a Grim trigger strategy, then: ​

Once an original decision has been made, what happens on a game tree with each additional decision made by a player?

Use the table, with data for Bella and Martin, to answer the question. If Bella and Martin cooperate, Bella would earn _____ more and Martin _____ more than they would without cooperation. Table: Bella's and Martin's Auto Oil Change Companies Martin's price =\ 35 Martin's price =\ 50 Bella's price = Bella's profit =\ 4,000 Bella's profit =\ 6,000 \ 40 Martin's profit =\ 3,500 Martin's profit =\ 1,000 Bella's price = Bella's profit =\ 1,000 Bella's profit =\ 5,000 \5 5 Martin's profit =\ 5,500 Martin's profit =\ 5,000

(Table: Nike and Reebok Advertising Game) Use Table: Nike and Reebok Advertising Game. The sneaker industry is dominated by Nike and Reebok, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during the World Series. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of its rival. Profits in each cell of the payoff matrix are given as (Nike, Reebok). If both firms expect to play this game repeatedly (every year for the foreseeable future), and each follows a Grim trigger strategy, then in equilibrium, Nike _____ and Reebok _____. ​

(Figure: Payoff Matrix for Antojito and Carolina Reaper) Use Figure: Payoff Matrix for Antojito and Carolina Reaper. The BEST response for Antojito is: ​

In an oligopoly, cooperation between firms usually leads to higher profits than defecting. In spite of this, cooperation doesn't usually occur because: I. it is illegal. II. there is an incentive for each firm to cheat on an agreement to cooperate. III. an oligopolistic firm will typically prefer lower profits for itself if the only way to make higher collective profits in the industry is to improve the profit position of its rivals.

Use the table with data for Gizelle and Devin to answer the question. Gizelle tries to put herself in Devin's place. If she (Gizelle) charges a price of $9, then she thinks that Devin will charge ____ to earn a profit of _____. $\text { Table: Gizelle's and Devin's Smoothie Shops }$ Devin's price =\ 6 Devin's price =\ 8 Gizelle's price = Gizelle's profit =\ 3,000 Gizelle's profit =\ 6,000 \ 7 Devin's profit =\ 2,500 Devin's profit =\ 1,000 Gizelle's price = Gizelle's profit =\ 1,000 Gizelle's profit =\ 5,000 \ 9 Devin's profit =\ 5,000 Devin's profit =\ 4,000

(Figure: Oligopoly Pricing Strategy in Wireless TV Market I) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market I. If both Spectrum and Sling advertise, then without any collusion: ​

(Figure: Payoff Matrix for George and Garner) Use Figure: Payoff Matrix for George and Garner. The figure describes two people who sell handmade porcelain figurines in San Francisco. Both George and Garner have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. If both follow a Grim trigger strategy, equilibrium will be reached when George produces _____ figurines and Garner produces _____ figurines. ​

Which of the following is NOT consistent with the idea that an economy's booms and busts can be self-fulfilling prophecies?