Question 1

A Nash equilibrium is a condition that:

Accepted Answer

A)  results in the highest payoff to a player regardless of the opponent's action. 
B)  guarantees the highest payoff given the worst possible scenario. 
C)  describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies. 
D)  randomizes over two or more available actions in order to keep rivals from being able to predict a player's action. 
A)  results in the highest payoff to a player regardless of the opponent's action. 
B)  guarantees the highest payoff given the worst possible scenario. 
C)  describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies. 
D)  randomizes over two or more available actions in order to keep rivals from being able to predict a player's action.

Question 2

If you advertise and your rival advertises,you each will earn $3 million in profits.If neither of you advertises,you will each earn $7 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $10 million and the non-advertising firm will earn $1 million.If you and your rival plan to hand your business down to your children,and this "bequest" goes on forever,then a Nash equilibrium when the interest rate is zero is for:

Accepted Answer

A)  your firm to never advertise. 
B)  your firm to always advertise when your rival does, provided that the interest rate is sufficiently large. 
C)  each firm to not advertise until the rival does, and then to advertise forever provided the interest rate is sufficiently low. 
D)  each firm to advertise until the rival does not advertise, and then not advertise forever. 
A)  your firm to never advertise. 
B)  your firm to always advertise when your rival does, provided that the interest rate is sufficiently large. 
C)  each firm to not advertise until the rival does, and then to advertise forever provided the interest rate is sufficiently low. 
D)  each firm to advertise until the rival does not advertise, and then not advertise forever.

Question 3

If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. Which of the following is true?

Accepted Answer

A)  A secure strategy for firm A is to not advertise. 
B)  A secure strategy for firm B is to advertise. 
C)  Firm A does not have a secure strategy. 
D)  None of the preceding answers is correct. 
A)  A secure strategy for firm A is to not advertise. 
B)  A secure strategy for firm B is to advertise. 
C)  Firm A does not have a secure strategy. 
D)  None of the preceding answers is correct.

Question 4

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. $\begin{array}{c}
\text { Firm 2}\
\text { Firm 1}
\begin{array}{|l|l|l|} 
\hline &\text { High Price } & \text { Low Price }\
\hline & & \
\text { High Price } & (10,10) & (5,-5) \
\hline & & \
\text { Low Price } & (-5,5) & (0,0)\
\hline
\end{array}\end{array}$ Which of the following are secure strategies for players 1 and 2,respectively?

Accepted Answer

A)  (high price, high price) 
B)  (high price, low price) 
C)  (low price, high price) 
D)  (low price, low price) 
A)  (high price, high price) 
B)  (high price, low price) 
C)  (low price, high price) 
D)  (low price, low price)

Question 5

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. $\begin{array}{c}
\text { Firm 2}\
\text { Firm 1}
\begin{array}{|l|l|l|} 
\hline &\text { High Price } & \text { Low Price }\
\hline & & \
\text { High Price } & (10,10) & (5,-5) \
\hline & & \
\text { Low Price } & (-5,5) & (0,0)\
\hline
\end{array}\end{array}$ A dominant strategy for firm 1 is:

Accepted Answer

A)  high price. 
B)  low price. 
C)  different from firm 1's secure strategy. 
D)  low price and different from firm 1's secure strategy. 
A)  high price. 
B)  low price. 
C)  different from firm 1's secure strategy. 
D)  low price and different from firm 1's secure strategy.

Question 6

There are two existing firms in the market for computer chips.Firm A knows how to reduce the production costs for the chip and is considering whether to adopt the innovation or not.Innovation incurs a fixed setup cost of C,while increasing the revenue.However,once the new technology is adopted,another firm,B,can adopt it with a smaller setup cost of C/3.If A innovates and B does not,A earns $30 in revenue while B earns $10.If A innovates and B does likewise,both firms earn $20 in revenue.If neither firm innovates,both earn $10.If C = 12,which is the perfect equilibrium of the game?

Accepted Answer

A)  A innovates, B does not. 
B)  A innovates, B innovates. 
C)  Neither firm innovates. 
D)  None of the preceding answers is correct. 
A)  A innovates, B does not. 
B)  A innovates, B innovates. 
C)  Neither firm innovates. 
D)  None of the preceding answers is correct.

Question 7

Which of the following is a valid critique of the use of game theory in economics?

Accepted Answer

A)  Payoffs to players may be difficult to measure. 
B)  Players may not have complete information about each other's payoffs. 
C)  Game theory assumes rational players. 
D)  All of the statements associated with this question are correct. 
A)  Payoffs to players may be difficult to measure. 
B)  Players may not have complete information about each other's payoffs. 
C)  Game theory assumes rational players. 
D)  All of the statements associated with this question are correct.

Question 8

You are the manager of Copies Are Us.The only other copy store in town,the Carbon Copy,recently got bids on adding a color copier.You must decide whether to obtain a color copier,but you can base your decision on what your rival does.If your rival adds a color copier and you don't,you expect your profits to fall by $1,000 per week and its profits to rise by $1,500 per week.Conversely,if you add the color copier and your rival does not,your profits will increase by $1,500 per week and your rival's profits will fall by $1,000 per week.However,if you both do the same thing (add color copies or not),you each expect profits to stay at their current level.Show the extensive form of this game,and find the Nash equilibrium (or equilibria).Is there a subgame perfect equilibrium?

Accepted Answer

The extensive form game is sho

Question 9

Refer to the normal-form game of advertising shown below. $\begin{array}{c}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A }
\begin{array}{|l|l|l|} 
\hline & \text { Advertise } & \begin{array}{l}
\text { Do Not } \
\text { Advertise }
\end{array} \
\hline \text { Advertise } & \$ 0, \$ 0 & \$ 175, \$ 10 \
\hline \begin{array}{l}
\text { Do Not } \
\text { Advertise }
\end{array} & \$ 10, \$ 175 & \$ 125, \$ 125\
\hline
\end{array}\end{array}$ Consider the advertising game in Figure 10-17.Firms A and B know the game will be played for exactly five periods.What is a Nash equilibrium to this game?

Accepted Answer

A)  {advertise, do not advertise} 
B)  {advertise, advertise} 
C)  {do not advertise, do not advertise} provided the interest rate is less than 0.10 percent 
D)  {advertise, advertise} provided the interest rate is less than 0.50 percent 
A)  {advertise, do not advertise} 
B)  {advertise, advertise} 
C)  {do not advertise, do not advertise} provided the interest rate is less than 0.10 percent 
D)  {advertise, advertise} provided the interest rate is less than 0.50 percent

Question 10

Consider the following entry game: Here,firm B is an existing firm in the market,and firm A is a potential entrant.Firm A must decide whether to enter the market (play "enter")or stay out of the market (play "not enter").If firm A decides to enter the market,firm B must decide whether to engage in a price war (play "hard"),or not (play "soft").By playing "hard," firm B ensures that firm A makes a loss of $2 million,but firm B only makes $2 million in profits.On the other hand,if firm B plays "soft," the new entrant takes half of the market,and each firm earns profits of $4 million.If firm A stays out,it earns zero while firm B earns $8 million.Which of the following are Nash equilibrium strategies?

Accepted Answer

A)  (enter, hard) and (not enter, hard) 
B)  (enter, soft) and (not enter, soft) 
C)  (not enter, hard) and (enter, soft) 
D)  (enter, hard) and (not enter, soft) 
A)  (enter, hard) and (not enter, hard) 
B)  (enter, soft) and (not enter, soft) 
C)  (not enter, hard) and (enter, soft) 
D)  (enter, hard) and (not enter, soft)

Question 11

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. $\begin{array}{c}
\text { Worker }\
\text { Manager}
\begin{array}{|l|l|l|} 
\hline & \text { Work } & \text { Shirk } \
\hline & & \
\text { Monitor } & -1,1 & 1,-1 \
\hline \text { Don't } \
\text { Monitor }& 1,-1 &  -1,1\
\hline
\end{array}\end{array}$ Which of the following pairs of strategies constitutes a Nash equilibrium?

Accepted Answer

A)  Manager monitors and worker works. 
B)  Manager does not monitor and worker works. 
C)  Manager monitors and worker shirks. 
D)  None of the preceding answers is correct. 
A)  Manager monitors and worker works. 
B)  Manager does not monitor and worker works. 
C)  Manager monitors and worker shirks. 
D)  None of the preceding answers is correct.

Question 12

Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a Nash equilibrium?

Accepted Answer

A)  Management requests $50 and the labor union accepts $0. 
B)  Management requests $35 and the labor union accepts $10. 
C)  Management requests $20 and the labor union accepts $20. 
D)  Management requests $25 and the labor union accepts $10. 
A)  Management requests $50 and the labor union accepts $0. 
B)  Management requests $35 and the labor union accepts $10. 
C)  Management requests $20 and the labor union accepts $20. 
D)  Management requests $25 and the labor union accepts $10.

Question 13

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. $\begin{array}{c}
\text { Worker }\
\text { Manager}
\begin{array}{|l|l|l|} 
\hline & \text { Work } & \text { Shirk } \
\hline & & \
\text { Monitor } & -1,1 & 1,-1 \
\hline \text { Don't } \
\text { Monitor }& 1,-1 &  -1,1\
\hline
\end{array}\end{array}$ Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a perfect equilibrium?

Accepted Answer

A)  Management requests $49.99, and the labor union accepts $0.01. 
B)  Management requests $25, and the labor union accepts $25. 
C)  Management requests $0, and the labor union accepts $50. 
D)  None of the preceding answers is correct. 
A)  Management requests $49.99, and the labor union accepts $0.01. 
B)  Management requests $25, and the labor union accepts $25. 
C)  Management requests $0, and the labor union accepts $50. 
D)  None of the preceding answers is correct.

Question 14

Refer to the normal-form game of price competition shown below. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|} 
\hline & \text { C } & \text { D }\
\hline & & \
 \text { A } & 0,7 & 5,2\
\hline & & \
\text { B } & 5,1 & 0,8 \
\hline
\end{array}\end{array}$ What are the pure Nash equilibrium strategies for this game?

Accepted Answer

A)  {(B, 
C) }. 
B)  {(A, 
C)  and (B, 
D) }. 
C)  {(A, 
C) }. 
D)  There is no pure strategy Nash equilibrium to this game. 
A)  {(B, 
C) }. 
B)  {(A, 
C)  and (B, 
D) }. 
C)  {(A, 
C) }. 
D)  There is no pure strategy Nash equilibrium to this game.

Question 15

If you advertise and your rival advertises,you each will earn $4 million in profits.If neither of you advertises,you will each earn $10 million in profits.However,if one of you advertises and the other does not,the firm that advertises will earn $1 million and the non-advertising firm will earn $5 million. Which of the following is true?

Accepted Answer

A)  A dominant strategy for firm A is to advertise. 
B)  A dominant strategy for firm B is to advertise. 
C)  A Nash equilibrium is for both firms to advertise. 
D)  None of the preceding answers is correct. 
A)  A dominant strategy for firm A is to advertise. 
B)  A dominant strategy for firm B is to advertise. 
C)  A Nash equilibrium is for both firms to advertise. 
D)  None of the preceding answers is correct.

Question 16

The following provides information for a one-shot game. $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\
\text { Firm A}
\begin{array}{|l|l|l|} 
\hline &\text { Low Price } & \text { High Price }\
\hline & & \
\text { Low Price } & (2,2) & (10,-8)\
\hline & & \
\text { High Price } & (-8,10) & (15,15)\
\hline
\end{array}\end{array}$ What are the Nash equilibrium strategies for this game?

Accepted Answer

A)  (low price, low price) 
B)  (high price, high price) 
C)  (low price, low price) and (high price, high price) 
D)  None of the preceding answers is correct. 
A)  (low price, low price) 
B)  (high price, high price) 
C)  (low price, low price) and (high price, high price) 
D)  None of the preceding answers is correct.

Question 17

Game theory is especially useful for analysis in the following markets:

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly 
A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly

Question 18

Refer to the normal-form game of price competition in the payoff matrix below. $\begin{array}{c}
\text { Firm B }\
\text { Firm A}
\begin{array}{|l|l|l|} 
\hline & \text { Low Price } & \text { High Price } \
\hline & & \
\text { Low Price } & 0,0 & 50,-10 \
\hline & & \
\text { High Price } & -10,50 & 20,20\
\hline
\end{array}\end{array}$ What is the maximum interest rate that can sustain collusion?

Accepted Answer

A)  30 percent 
B)  15 percent 
C)  66.7 percent 
D)  20 percent 
A)  30 percent 
B)  15 percent 
C)  66.7 percent 
D)  20 percent

Question 19

A mixed strategy is a strategy that:

Accepted Answer

A)  results in the highest payoff to a player regardless of the opponent's action. 
B)  guarantees the highest payoff given the worst possible scenario. 
C)  describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies. 
D)  randomizes over two or more available actions in order to keep rivals from being able to predict a player's action. 
A)  results in the highest payoff to a player regardless of the opponent's action. 
B)  guarantees the highest payoff given the worst possible scenario. 
C)  describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies. 
D)  randomizes over two or more available actions in order to keep rivals from being able to predict a player's action.

Question 20

The figure below presents information for a one-shot game. $\begin{array}{l}
\quad\quad\quad\quad\quad\text { Firm B }\
\text { Firm A}
\begin{array}{|l|l|l|}
\hline & \text { Low  Price } & \text { High Price } \
\hline \text { Low  Price } & (2,2) & (10,-8) \
\hline \text { HighPrice } & (-8,10) & (6,6) \
\hline
\end{array}\end{array}$ What are the Nash equilibrium strategies for firm A and B respectively?

Accepted Answer

A)  (low price, high price) 
B)  (high price, low price) 
C)  (high price, high price) 
D)  (low price, low price) 
A)  (low price, high price) 
B)  (high price, low price) 
C)  (high price, high price) 
D)  (low price, low price)

A Nash equilibrium is a condition that:

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm 2 Firm 1 High Price Low Price High Price (10,10) (5,-5) Low Price (-5,5) (0,0) Which of the following are secure strategies for players 1 and 2,respectively?

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm 2 Firm 1 High Price Low Price High Price (10,10) (5,-5) Low Price (-5,5) (0,0) A dominant strategy for firm 1 is:

Which of the following is a valid critique of the use of game theory in economics?

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. Worker Manager Work Shirk Monitor -1,1 1,-1 Don't Monitor 1,-1 -1,1 Which of the following pairs of strategies constitutes a Nash equilibrium?

Refer to the normal-form game of price competition shown below. Firm B Firm A C D A 0,7 5,2 B 5,1 0,8 What are the pure Nash equilibrium strategies for this game?

The following provides information for a one-shot game. Firm B Firm A Low Price High Price Low Price (2,2) (10,-8) High Price (-8,10) (15,15) What are the Nash equilibrium strategies for this game?

Game theory is especially useful for analysis in the following markets:

Refer to the normal-form game of price competition in the payoff matrix below. Firm B Firm A Low Price High Price Low Price 0,0 50,-10 High Price -10,50 20,20 What is the maximum interest rate that can sustain collusion?

A mixed strategy is a strategy that:

The figure below presents information for a one-shot game. Firm B Firm A Low Price High Price Low Price (2,2) (10,-8) HighPrice (-8,10) (6,6) What are the Nash equilibrium strategies for firm A and B respectively?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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Exam 10: Game Theory: Inside Oligopoly

A Nash equilibrium is a condition that:

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm 2 Firm 1 High Price Low Price High Price (10,10) (5,-5) Low Price (-5,5) (0,0) Which of the following are secure strategies for players 1 and 2,respectively?

In the game depicted below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm 2 Firm 1 High Price Low Price High Price (10,10) (5,-5) Low Price (-5,5) (0,0) A dominant strategy for firm 1 is:

Which of the following is a valid critique of the use of game theory in economics?

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. Worker Manager Work Shirk Monitor -1,1 1,-1 Don't Monitor 1,-1 -1,1 Which of the following pairs of strategies constitutes a Nash equilibrium?

Refer to the normal-form game of price competition shown below. Firm B Firm A C D A 0,7 5,2 B 5,1 0,8 What are the pure Nash equilibrium strategies for this game?

The following provides information for a one-shot game. Firm B Firm A Low Price High Price Low Price (2,2) (10,-8) High Price (-8,10) (15,15) What are the Nash equilibrium strategies for this game?

Game theory is especially useful for analysis in the following markets:

Refer to the normal-form game of price competition in the payoff matrix below. Firm B Firm A Low Price High Price Low Price 0,0 50,-10 High Price -10,50 20,20 What is the maximum interest rate that can sustain collusion?

A mixed strategy is a strategy that:

The figure below presents information for a one-shot game. Firm B Firm A Low Price High Price Low Price (2,2) (10,-8) HighPrice (-8,10) (6,6) What are the Nash equilibrium strategies for firm A and B respectively?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters