Question 1

Refer to the normal-form game of price competition shown below.   For what values of x is strategy D strictly dominant for firm B?

Accepted Answer

A) All x > 450 B) All x < 450 C) x = 450 D) x < 50 A) All x > 450 B) All x < 450 C) x = 450 D) x < 50

Question 2

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 $1 million, but firm B only makes $1 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 $5 million. If firm A stays out, it earns zero while firm B earns $10 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 3

Which of the following is a correct statement?

Accepted Answer

A)  A Nash equilibrium is always perfect. 
B)  A perfect equilibrium is always Nash. 
C)  A Nash equilibrium is always perfect in a multistage game. 
D)  None of the answers is correct. 
A)  A Nash equilibrium is always perfect. 
B)  A perfect equilibrium is always Nash. 
C)  A Nash equilibrium is always perfect in a multistage game. 
D)  None of the answers is correct.

Question 4

Consider the following information for a simultaneous move game: 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. 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:

Accepted Answer

A)  for each firm to not advertise until the rival does, and then to advertise forever. 
B)  for your firm to never advertise. 
C)  for your firm to always advertise when your rival does. 
D)  for each firm to advertise until the rival does not advertise, and then not advertise forever. 
A)  for each firm to not advertise until the rival does, and then to advertise forever. 
B)  for your firm to never advertise. 
C)  for your firm to always advertise when your rival does. 
D)  for each firm to advertise until the rival does not advertise, and then not advertise forever.

Question 5

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 $2 and B earns $15. If A introduces and B does not clone, then A earns $8 and B earns $1. If firm A does not introduce, both firms earn profits of 0. Which of the following is true?

Accepted Answer

A)  The subgame perfect Nash equilibrium profits are ($2, 15). 
B)  The subgame perfect Nash equilibrium profits are ($8, 1). 
C)  It is not in A's interest to introduce. 
D)  None of the answers is correct. 
A)  The subgame perfect Nash equilibrium profits are ($2, 15). 
B)  The subgame perfect Nash equilibrium profits are ($8, 1). 
C)  It is not in A's interest to introduce. 
D)  None of the answers is correct.

Question 6

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

Accepted Answer

A)  too little innovation. 
B)  too much innovation. 
C)  the socially efficient level of innovation. 
D)  None of the answers is correct. 
A)  too little innovation. 
B)  too much innovation. 
C)  the socially efficient level of innovation. 
D)  None of the answers is correct.

Question 7

Which of the following is true for a Nash equilibrium of a two-player game?

Accepted Answer

A)  The joint payoffs of the two players are highest compared to other strategy pairs. 
B)  Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy. 
C)  A Nash equilibrium is always unique in real-world problems. 
D)  Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy, and a Nash equilibrium is always unique in real-world problems. 
A)  The joint payoffs of the two players are highest compared to other strategy pairs. 
B)  Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy. 
C)  A Nash equilibrium is always unique in real-world problems. 
D)  Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy, and a Nash equilibrium is always unique in real-world problems.

Question 8

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 9

According to various trade publications, over 200,000 changes are made in airfares each day. Why do you think this is the case?

Accepted Answer

By randomizing prices it makes

Question 10

In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices.   Which of the following are the Nash equilibrium payoffs (each period) if the game is repeated 10 times?

Accepted Answer

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

Question 11

Refer to the normal-form game of price competition in the payoff matrix below.   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 12

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices.   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 13

Refer to the normal-form game of bargaining shown below.   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:

Accepted Answer

A)  3. 
B)  5. 
C)  6. 
D)  8. 
A)  3. 
B)  5. 
C)  6. 
D)  8.

Question 14

According to a spokesperson for cereal maker Kellogg, "… for the past several years, our individual company growth has come out of the other fellow's hide."
a. What implications does this statement have for the level of advertising in the cereal industry?
b. Using the following hypothetical payoff matrix, explain how trigger strategies can be used to support the collusive level of advertising in an infinitely repeated game. For what values of the interest can collusion be sustained?

Accepted Answer

@#IMG-DLM& a. The news implies that advertising in

Question 15

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 A innovate?

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 16

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 be in business for 10 years, then the Nash equilibrium is:

Accepted Answer

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

Question 17

When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis?

Accepted Answer

A)  Payoffs do not need to reflect the true payoffs of the oligopolists, they just need to be greater than or equal to zero. 
B)  Assume that oligopolists always move simultaneously. 
C)  Do not construct the payoffs of the oligopolists to be interdependent, as the payoff of one player usually does not affect the payoff of the other players. 
D)  Make sure the problem you are considering is of a one-shot or repeated nature, and you model it accordingly because the order in which players make decisions is important. 
A)  Payoffs do not need to reflect the true payoffs of the oligopolists, they just need to be greater than or equal to zero. 
B)  Assume that oligopolists always move simultaneously. 
C)  Do not construct the payoffs of the oligopolists to be interdependent, as the payoff of one player usually does not affect the payoff of the other players. 
D)  Make sure the problem you are considering is of a one-shot or repeated nature, and you model it accordingly because the order in which players make decisions is important.

Question 18

Refer to the normal-form game of price competition shown below.   For what values of x is strategy (B, D) the only Nash equilibrium of the game?

Accepted Answer

A) All x > 450 B) All x < 450 C) x = 450 D) x < 50 A) All x > 450 B) All x < 450 C) x = 450 D) x < 50

Question 19

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:

Accepted Answer

A)  close to 1. 
B)  close to 0. 
C)  between 0 and 1. 
D)  All of the statements associated with this question are correct. 
A)  close to 1. 
B)  close to 0. 
C)  between 0 and 1. 
D)  All of the statements associated with this question are correct.

Question 20

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 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 answers is correct.

Refer to the normal-form game of price competition shown below. For what values of x is strategy D strictly dominant for firm B?

Which of the following is a correct statement?

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

Which of the following is true for a Nash equilibrium of a two-player game?

According to various trade publications, over 200,000 changes are made in airfares each day. Why do you think this is the case?

In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices. Which of the following are the Nash equilibrium payoffs (each period) if the game is repeated 10 times?

Refer to the normal-form game of price competition in the payoff matrix below. What is the maximum interest rate that can sustain collusion?

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices. Which of the following are secure strategies for players 1 and 2, respectively?

When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis?

Refer to the normal-form game of price competition shown below. For what values of x is strategy (B, D) the only Nash equilibrium of the game?

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

Refer to the normal-form game of price competition shown below. For what values of x is strategy D strictly dominant for firm B?

Which of the following is a correct statement?

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

Which of the following is true for a Nash equilibrium of a two-player game?

According to various trade publications, over 200,000 changes are made in airfares each day. Why do you think this is the case?

In the game shown below, firms 1 and 2 must independently decide whether to charge high or low prices. Which of the following are the Nash equilibrium payoffs (each period) if the game is repeated 10 times?

Refer to the normal-form game of price competition in the payoff matrix below. What is the maximum interest rate that can sustain collusion?

In the game depicted below, firms 1 and 2 must independently decide whether to charge high or low prices. Which of the following are secure strategies for players 1 and 2, respectively?

When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis?

Refer to the normal-form game of price competition shown below. For what values of x is strategy (B, D) the only Nash equilibrium of the game?

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