In the game shown below,firms 1 and 2 must independently decide whether to charge high or low prices. $\begin{array}{l} \quad\quad\quad\quad\quad\text { Firm Two }\\ \text { Firm One } \begin{array}{|l|l|l|} \hline & \text { High Price } & \text { Low Price } \\ \hline \text { High Price } & (10,10) & (5,-5) \\ \hline \text { Low Price } & (5,-5) & (0,0) \\ \hline \end{array}\end{array}$ Suppose the game is infinitely repeated.Then the "best" the firms could do in a Nash equilibrium is to earn ___ per period.

A) (0, 0) B) (5, -5) C) (-5, 5) D) (10, 10) A) (0, 0) B) (5, -5) C) (-5, 5) D) (10, 10)

Refer to the normal-form game of advertising shown below. $\begin{array}{c} \quad\quad\quad\quad\quad\quad\text { Firm B}\\ \text { Firm A } \begin{array}{|l|l|l|} \hline & \text { Advertise } & \begin{array}{l} \text { Do Not } \\ \text { Advertise } \end{array} \\ \hline \text { Advertise } & \$ 0, \$ 0 & \$ 175, \$ 10 \\ \hline \begin{array}{l} \text { Do Not } \\ \text { Advertise } \end{array} & \$ 10, \$ 175 & \$ 125, \$ 125\\ \hline \end{array}\end{array}$ Suppose there is a 90 percent chance that the advertising game depicted in Figure 10-17 will end next period.The collusive agreement {(not advertise,not advertise)} is:

A) sustainable since $175 $50. D) unsustainable since $11.11 > $50. A) sustainable since $175 $50. D) unsustainable since $11.11 > $50.

The following depicts a normal-form game of price competition. $\begin{array}{l} \quad\quad\quad\quad\quad\quad\text { Firm B}\\ \text { Firm A} \begin{array}{|l|l|l|} \hline &\text { Low Price } & \text { High Price }\\ \hline & & \\ \text { Low Price } & 0,0 & 25,-5 \\ \hline & & \\ \text { High Price } & -5,25 & 10,10 \\ \hline \end{array}\end{array}$ What is the maximum interest rate that can sustain collusion?

A) 66.7 percent B) 33 percent C) 25 percent D) 15 percent A) 66.7 percent B) 33 percent C) 25 percent D) 15 percent

Refer to the normal-form game of advertising shown below. $\begin{array}{c} \quad\quad\quad\quad\quad\quad\text { Firm B}\\ \text { Firm A } \begin{array}{|l|l|l|} \hline & \text { Advertise } & \begin{array}{l} \text { Do Not } \\ \text { Advertise } \end{array} \\ \hline \text { Advertise } & \$ 0, \$ 0 & \$ 175, \$ 10 \\ \hline \begin{array}{l} \text { Do Not } \\ \text { Advertise } \end{array} & \$ 10, \$ 175 & \$ 125, \$ 125\\ \hline \end{array}\end{array}$ Suppose there is a 20 percent chance that the advertising game depicted in Figure 10-17 will end next period.The collusive agreement {(not advertise,not advertise)} is:

A) sustainable since $175 $50. D) unsustainable since $10 > $50. A) sustainable since $175 $50. D) unsustainable since $10 > $50.

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. $\begin{array}{c} \text { Worker }\\ \text { Manager} \begin{array}{|l|l|l|} \hline & \text { Work } & \text { Shirk } \\ \hline & & \\ \text { Monitor } & -1,1 & 1,-1 \\ \hline \text { Don't } \\ \text { Monitor }& 1,-1 & -1,1\\ \hline \end{array}\end{array}$ What should the manager do to solve the shirking problem?

A) Always monitor. B) Never monitor. C) Sincerely tell workers not to shirk. D) Engage in "random" spot checks of the workplace. A) Always monitor. B) Never monitor. C) Sincerely tell workers not to shirk. D) Engage in "random" spot checks of the workplace.

Refer to the normal-form game of price competition shown below. $\begin{array}{l} \quad\quad\quad\quad\quad\quad\text { Firm B}\\ \text { Firm A} \begin{array}{|l|l|l|} \hline & \text { C } & \text { D }\\ \hline & & \\ \text { A } & 0,7 & 5,2\\ \hline & & \\ \text { B } & 5,1 & 0,8 \\ \hline \end{array}\end{array}$ Which of the following represents firm A's full strategy space?

A) {A, C} B) {A, B} C) {(A, C) , (A, D) , (B, C) , (B, D) } D) {C, D} A) {A, C} B) {A, B} C) {(A, C) , (A, D) , (B, C) , (B, D) } D) {C, D}

Exam 10: Game Theory: Inside Oligopoly

In the game shown below,firms 1 and 2 must independently decide whether to charge high or low prices. Firm Two Firm One High Price Low Price High Price (10,10) (5,-5) Low Price (5,-5) (0,0) Suppose the game is infinitely repeated.Then the "best" the firms could do in a Nash equilibrium is to earn ___ per period.

(Multiple Choice)

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Question 101

Consider the following innovation game: Firm A must decide whether or not to introduce a new product.Firm B must decide whether or not to clone firm A's product.If firm A introduces and B clones,then firm A earns $1 and B earns $10.If A introduces and B does not clone,then A earns $10 and B earns $2.If firm A does not introduce,both firms earn profits of 0.How many Nash equilibria are there for this game?

(Multiple Choice)

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Question 102

Refer to the normal-form game of advertising shown below. Firm B Firm A Advertise Do Not Advertise Advertise \ 0,\ 0 \ 175,\ 10 Do Not Advertise \ 10,\ 175 \ 125,\ 125 Suppose there is a 90 percent chance that the advertising game depicted in Figure 10-17 will end next period.The collusive agreement {(not advertise,not advertise)} is:

(Multiple Choice)

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Question 103

Which of the following conditions are necessary for the existence of a Nash equilibrium?

(Multiple Choice)

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Question 104

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 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 NOT a Nash equilibrium?

(Multiple Choice)

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Question 105

You are the bargaining coordinator for Sun Car Manufacturers.At present you are renegotiating the labor contract with the union representative.You are bargaining over an expected 20 percent increase in earnings over the next three-year contract period.You are trying to decide whether to offer one-third,one-half,or all of the increase in earnings to the union.The union rules are such that all contracts must be voted on.The additional earnings are contingent on getting started on the new contract next week.If an agreement isn't reached on the first round of negotiations,the firm will go out of business.The union representative tells you that if you do not give the union all of the additional profits,the union members will not vote for the agreement. a.Show the extensive form of this game. b.What will you offer the union? Why?

(Essay)

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Question 106

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 perfect equilibrium strategies?

(Multiple Choice)

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Question 107

The following depicts a normal-form game of price competition. Firm B Firm A Low Price High Price Low Price 0,0 25,-5 High Price -5,25 10,10 What is the maximum interest rate that can sustain collusion?

(Multiple Choice)

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Question 108

Refer to the normal-form game of advertising shown below. Firm B Firm A Advertise Do Not Advertise Advertise \ 0,\ 0 \ 175,\ 10 Do Not Advertise \ 10,\ 175 \ 125,\ 125 Suppose there is a 20 percent chance that the advertising game depicted in Figure 10-17 will end next period.The collusive agreement {(not advertise,not advertise)} is:

(Multiple Choice)

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Question 109

Which of the following is the major means to signal good quality of goods by firms?

(Multiple Choice)

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Question 110

Refer to the normal-form game of bargaining shown below. Management Union \ 0 \ 250 \ 500 \ 0 (\ 0,\ 0) (\ 0,\ 250) (\ 0,\ 500) \ 250 (\ 250,\ 0) (\ 250,\ 250) (-\ 10,-\ 10) \ 500 (\ 500,\ 0) (-\ 10,-\ 10) (-\ 10,-\ 10) Suppose that management and the union are bargaining over how much of a $500 surplus to give to the union.It is assumed that the surplus can only be split into $250 increments.Furthermore,negotiations are set up such that management and the union must simultaneously and independently write down the amount of surplus to allocate to the union.The payoff structure to this one-shot bargaining game is listed in Figure 10-16.The number of efficient outcomes resulting from the bargaining game is:

(Multiple Choice)

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Question 111

If you advertise and your rival advertises,you each will earn $5 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 $15 million and the non-advertising firm will earn $1 million.Suppose this game is repeated for a finite number of times,but the players do not know the exact date at which the game will end.The players can earn collusive profits as a Nash equilibrium to the repeated play of the game if the probability the game terminates in any period is:

(Multiple Choice)

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Question 112

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.If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever),then a Nash equilibrium is for each firm to:

(Multiple Choice)

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Question 113

Refer to the normal-form game of price competition shown below. Firm B is the incumbent facing potential entry from its rival,firm A. Firm A's strategies consist of {entry, stay out}. Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}. Find the subgame Nash equilibrium to this game, if one exists.

(Multiple Choice)

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Question 114

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 What should the manager do to solve the shirking problem?

(Multiple Choice)

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Question 115

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.Suppose this game is repeated for a finite number of times,but the players do not know the exact date at which the game will end.The players can earn profits of $10 each period as a Nash equilibrium to a repeated play of the game if the probability the game terminates at the end of any period is:

(Multiple Choice)

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Question 116

Refer to the normal-form game of bargaining shown below. Management Union \ 0 \ 250 \ 500 \ 0 (\ 0,\ 0) (\ 0,\ 250) (\ 0,\ 500) \ 250 (\ 250,\ 0) (\ 250,\ 250) (-\ 10,-\ 10) \ 500 (\ 500,\ 0) (-\ 10,-\ 10) (-\ 10,-\ 10) Suppose that management and the union are bargaining over how much of a $500 surplus to give to the union.It is assumed that the surplus can only be split into $250 increments.Furthermore,negotiations are set up such that management and the union must simultaneously and independently write down the amount of surplus to allocate to the union.The payoff structure to this one-shot bargaining game is listed in Figure 10-16.Find the Nash equilibrium(ia)to this game.

(Multiple Choice)

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Question 117

A dominant strategy is a strategy that:

(Multiple Choice)

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Question 118

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/2.If A innovates and B does not,A earns $20 in revenue while B earns $0.If A innovates and B does likewise,both firms earn $15 in revenue.If neither firm innovates,both earn $5.Under what condition will firm B have an incentive to adopt if firm A adopts the innovation?

(Multiple Choice)

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Question 119

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 Which of the following represents firm A's full strategy space?

(Multiple Choice)

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Question 120

Which of the following conditions are necessary for the existence of a Nash equilibrium?

The following depicts a normal-form game of price competition. Firm B Firm A Low Price High Price Low Price 0,0 25,-5 High Price -5,25 10,10 What is the maximum interest rate that can sustain collusion?

Which of the following is the major means to signal good quality of goods by firms?

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 What should the manager do to solve the shirking problem?

A dominant strategy is a strategy that:

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 Which of the following represents firm A's full strategy space?

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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