Question 1

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 2

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.   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 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 answers is correct.

Question 3

Which of the following conditions correctly describes a Nash equilibrium when two firms are in the market?

Accepted Answer

A)  π1(s1*, s2*) ≥ π1(s1, s2*) for all s1. 
B)  π1(s1*, s2*) ≥ π1(s1, s2*) for all s1 and π2(s1*, s2*) ≥ π2(s1*, s2) for all s2. 
C)  π1(s1*, s2*) ≥ π2(s1, s2*) for all s1 and π2(s1*, s2*) ≥ π1(s1*, s2) for all s2. 
D)  π1(s1, s2*) ≥ π2(s1*, s2*) for all s1 and π2(s1*, s2) ≥ π1(s1*, s2*) for all s2. 
A)  π1(s1*, s2*) ≥ π1(s1, s2*) for all s1. 
B)  π1(s1*, s2*) ≥ π1(s1, s2*) for all s1 and π2(s1*, s2*) ≥ π2(s1*, s2) for all s2. 
C)  π1(s1*, s2*) ≥ π2(s1, s2*) for all s1 and π2(s1*, s2*) ≥ π1(s1*, s2) for all s2. 
D)  π1(s1, s2*) ≥ π2(s1*, s2*) for all s1 and π2(s1*, s2) ≥ π1(s1*, s2*) for all s2.

Question 4

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

Accepted Answer

A)  Sales 
B)  Advertisements 
C)  Warranties/guarantees 
D)  Both sales and advertisements 
A)  Sales 
B)  Advertisements 
C)  Warranties/guarantees 
D)  Both sales and advertisements

Question 5

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. Under what condition will firm B have an incentive to adopt if firm A adopts the innovation?

Accepted Answer

A)  C > 30 
B)  C  C > 0 
D)  35 > C > 25 
A)  C > 30 
B)  C  C > 0 
D)  35 > C > 25

Question 6

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices.   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 7

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?

Accepted Answer

a. See the figure below. @#IMG-DLM& b. The bargain

Question 8

It is easier to sustain tacit collusion in an infinitely repeated game if:

Accepted Answer

A)  the present value of cheating is higher. 
B)  there are more players in the game. 
C)  the interest rate is lower. 
D)  the present value of cheating is higher and the interest rate is lower. 
A)  the present value of cheating is higher. 
B)  there are more players in the game. 
C)  the interest rate is lower. 
D)  the present value of cheating is higher and the interest rate is lower.

Question 9

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Accepted Answer

A)  Fire the worker as soon as he announces his plans to quit. 
B)  Provide the worker some rewards for good work that extend beyond the termination of employment with your firm. 
C)  Monitor the worker more often than usual and fire him when he is caught shirking. 
D)  Pay the worker some rewards when he announces his plan to quit. 
A)  Fire the worker as soon as he announces his plans to quit. 
B)  Provide the worker some rewards for good work that extend beyond the termination of employment with your firm. 
C)  Monitor the worker more often than usual and fire him when he is caught shirking. 
D)  Pay the worker some rewards when he announces his plan to quit.

Question 10

Which of the following is true?

Accepted Answer

A)  For a finitely repeated game, the game is played enough times to effectively punish cheaters, and therefore collusion is likely. 
B)  In an infinitely repeated game with a low interest rate, collusion is unlikely because the game unravels so that effective punishment cannot be used during any time period. 
C)  A secure strategy is the optimal strategy for a player no matter what the opponent does. 
D)  None of the answers is correct. 
A)  For a finitely repeated game, the game is played enough times to effectively punish cheaters, and therefore collusion is likely. 
B)  In an infinitely repeated game with a low interest rate, collusion is unlikely because the game unravels so that effective punishment cannot be used during any time period. 
C)  A secure strategy is the optimal strategy for a player no matter what the opponent does. 
D)  None of the answers is correct.

Question 11

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 be in business for 15 years, then the Nash equilibrium is for:

Accepted Answer

A)  you and your rival to not advertise in any year. 
B)  you and your rival to advertise every year. 
C)  neither firm to advertise in early years, but to advertise in later years. 
D)  each firm to advertise in early years, but not advertise in later years. 
A)  you and your rival to not advertise in any year. 
B)  you and your rival to advertise every year. 
C)  neither firm to advertise in early years, but to advertise in later years. 
D)  each firm to advertise in early years, but not advertise in later years.

Question 12

Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis?

Accepted Answer

A)  Make sure the payoffs reflect the true payoffs of the oligopolists. 
B)  Determine whether the oligopolists move simultaneously or sequentially. 
C)  Determine whether the problem considered is of a one-shot or a repeated nature. 
D)  All of the statements associated with this question are correct. 
A)  Make sure the payoffs reflect the true payoffs of the oligopolists. 
B)  Determine whether the oligopolists move simultaneously or sequentially. 
C)  Determine whether the problem considered is of a one-shot or a repeated nature. 
D)  All of the statements associated with this question are correct.

Question 13

A secure 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 14

Based on the following game, what are the secure strategies for player 1 and player 2?

Accepted Answer

A)  S1 and t2 
B)  S1 and t1 
C)  S2 and t2 
D)  S2 and t1 
A)  S1 and t2 
B)  S1 and t1 
C)  S2 and t2 
D)  S2 and t1

Question 15

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?

Accepted Answer

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

Question 16

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. 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)  All of the statements associated with this question are 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)  All of the statements associated with this question are correct.

Question 17

Refer to the normal-form game of price competition shown below.   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 18

Two firms produce identical products at zero cost, and they compete by setting prices. If each firm charges a low price, then both firms earn profits of zero. If each firm charges a high price, then each firm earns profits of $30. If one firm charges a high price and the other firm charges a low price, the firm that charges the lower price earns profits of $50 and the firm charging the higher price earns profits of zero.
a. Which oligopoly model best describes this situation?
b. Write this game in normal form.
c. Suppose the game is infinitely repeated. Can the players sustain the "collusive outcome" as a Nash equilibrium if the interest rate is 50 percent? Explain.

Accepted Answer

a. The Bertrand model (Cournot and Stack

Question 19

The following provides information for a one-shot game.   What are the dominant strategies for firm A and firm B respectively?

Accepted Answer

A)  (low price, high price) 
B)  (high price, low price) 
C)  (high price, high price) 
D)  Neither firm has a dominant strategy. 
A)  (low price, high price) 
B)  (high price, low price) 
C)  (high price, high price) 
D)  Neither firm has a dominant strategy.

Question 20

In the early 1990s, there was considerable uncertainty in the computer industry about whether the dominant operating system for future personal computers would be IBM's OS/2 or Microsoft's Windows. Ultimately, Windows emerged as the dominant system despite the fact that several trade publications viewed OS/2 as the superior system. Why do you think this outcome prevailed?

Accepted Answer

The problem of selecting an operating sy

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

Which of the following conditions correctly describes a Nash equilibrium when two firms are in the market?

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

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices. A dominant strategy for firm 1 is:

It is easier to sustain tacit collusion in an infinitely repeated game if:

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Which of the following is true?

Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis?

A secure strategy is a strategy that:

Based on the following game, what are the secure strategies for player 1 and player 2?

Refer to the normal-form game of price competition shown below. What are the pure Nash equilibrium strategies for this game?

The following provides information for a one-shot game. What are the dominant strategies for firm A and firm 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

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

Which of the following conditions correctly describes a Nash equilibrium when two firms are in the market?

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

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices. A dominant strategy for firm 1 is:

It is easier to sustain tacit collusion in an infinitely repeated game if:

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Which of the following is true?

Economists use game theory to predict the behavior of oligopolists. Which of the following is crucial for the success of the analysis?

A secure strategy is a strategy that:

Based on the following game, what are the secure strategies for player 1 and player 2?

Refer to the normal-form game of price competition shown below. What are the pure Nash equilibrium strategies for this game?

The following provides information for a one-shot game. What are the dominant strategies for firm A and firm 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