Question 1

A game tree diagram is used to represent:

Accepted Answer

A)  a non-zero-sum game. 
B)  a Nash equilibrium. 
C)  a simultaneous game. 
D)  a dominant strategy equilibrium. 
E)  a sequential game. 
A)  a non-zero-sum game. 
B)  a Nash equilibrium. 
C)  a simultaneous game. 
D)  a dominant strategy equilibrium. 
E)  a sequential game. E

Question 2

The following table shows the payoffs for Firm 1 and Firm 2 in a zero-sum game:
Table 10-2
 $\begin{array}{c}
\quad\quad\quad\text { Firm2}\
\begin{array}{|c|c|r|}
\hline\text { Firm 1 } & \text { C1 } & {\text { C2 }} \
\hline \text { R1 } & 4,5 & 10,4 \
\hline \text { R2 } & 2,8 & 8,7\
\hline
\end{array}
\end{array}$

-Refer to Table 10-2. Identify the correct statement.

Accepted Answer

A)  Firm 1's dominant strategy is R1. 
B)  The equilibrium strategies are R1 versus C2. 
C)  Neither player has a dominant strategy. 
D)  The equilibrium payoffs are 10 and 4. 
E)  The game is a constant-sum game. 
A)  Firm 1's dominant strategy is R1. 
B)  The equilibrium strategies are R1 versus C2. 
C)  Neither player has a dominant strategy. 
D)  The equilibrium payoffs are 10 and 4. 
E)  The game is a constant-sum game. A

Question 3

List and briefly explain the main entry deterrence policies that an oligopoly firm might employ to prevent other firms from entering a market.

Accepted Answer

Entry deterrence policies include: limit pricing, maintaining excess production capacity (to be used should a new firm achieve entry), pursuing product differentiation strategies, and filing patent infringement suits.

Question 4

Define the concept of Nash equilibrium. Why is it important?

Accepted Answer

In a Nash equilibrium, each player uses

Question 5

List and explain the various forms of oligopolistic cooperation, which may benefit all firms, and lead to greater profitability.

Accepted Answer

Cooperative actions include (b

Question 6

A mixed strategy:

Accepted Answer

A)  involves two or more pure strategies, each with fixed probabilities. 
B)  is a course of action chosen by a player with certainty. 
C)  is a player's best response to any strategy that the other player might pick. 
D)  refers to the series of moves made by players in a repeated game. 
E)  is another term for a player's contingent actions. 
A)  involves two or more pure strategies, each with fixed probabilities. 
B)  is a course of action chosen by a player with certainty. 
C)  is a player's best response to any strategy that the other player might pick. 
D)  refers to the series of moves made by players in a repeated game. 
E)  is another term for a player's contingent actions.

Question 7

What is the role of information in a strategic game?

Accepted Answer

The amount of information that a firm po

Question 8

How do constant-sum games and non-constant-sum games differ from each other? Give an example of each.

Accepted Answer

A constant-sum game is one of pure confl

Question 9

For the payoff table listed, determine the equilibrium outcome. Does either firm have a dominant strategy?
 $\begin{array}{c}
\quad\quad\quad\text { Firm } 2\
\begin{array}
 { | c | c | c | } 
\hline \text { Firm 1 } & \text { Low price } & \text { High price } \
\hline \text { Low price } & 28,12 & 48,20 \
\hline \text { High price } & 20,30 & 30,22 \
\hline
\end{array}
\end{array}$

Accepted Answer

The equilibrium outcome is for Firm 1 to

Question 10

Why does the strategy of tit-for-tat support cooperative equilibrium?

Accepted Answer

Tit-for-tat is a punishment strategy tha

Question 11

Game theory offers insight into:

Accepted Answer

A)  pricing behavior in competitive markets. 
B)  the optimal output and pricing strategy of a monopolist. 
C)  the degree of monopoly power enjoyed by a firm. 
D)  strategic behavior of firms in an oligopoly. 
E)  adjustment to equilibrium in a monopolistically competitive market. 
A)  pricing behavior in competitive markets. 
B)  the optimal output and pricing strategy of a monopolist. 
C)  the degree of monopoly power enjoyed by a firm. 
D)  strategic behavior of firms in an oligopoly. 
E)  adjustment to equilibrium in a monopolistically competitive market.

Question 12

What is the dilemma in the prisoner's dilemma? What is the key assumption about behavior? Suggest one way to overcome the dilemma.

Accepted Answer

The general dilemma is that optimal indi

Question 13

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies:
Table 10-3
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | } 
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 3,1 & 4,2 & 2,0 \
\hline \text { Medium } & 2,3 & 5,5 & 3,4 \
\hline \text { Low } & 5,4 & 7,5 & 5,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-3. Identify Firm 1's dominant strategy.

Accepted Answer

A)  Its dominant strategy is medium prices. 
B)  Firm 1 does not have a dominant strategy. 
C)  Its dominant strategy is high prices. 
D)  Its dominant strategy could be low or medium prices depending on Firm 2's response. 
E)  Its dominant strategy is low prices. 
A)  Its dominant strategy is medium prices. 
B)  Firm 1 does not have a dominant strategy. 
C)  Its dominant strategy is high prices. 
D)  Its dominant strategy could be low or medium prices depending on Firm 2's response. 
E)  Its dominant strategy is low prices.

Question 14

The following table lists the payoffs of two firms adopting three possible advertising strategies:
Table 10-5
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | } 
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 3,2 & 4,1 & 5,0 \
\hline \text { Medium } & 1,6 & 5,4 & 3,3 \
\hline \text { Low } & 0,4 & 5,5 & 6,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-5. The (Nash) equilibrium pair of strategies for Firms 1 and 2 is:

Accepted Answer

A)  Low advertising versus high advertising. 
B)  High advertising for both firms. 
C)  Medium advertising versus low advertising. 
D)  High advertising versus low advertising. 
E)  Medium advertising for both firms. 
A)  Low advertising versus high advertising. 
B)  High advertising for both firms. 
C)  Medium advertising versus low advertising. 
D)  High advertising versus low advertising. 
E)  Medium advertising for both firms.

Question 15

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies:
Table 10-3
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | } 
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 3,1 & 4,2 & 2,0 \
\hline \text { Medium } & 2,3 & 5,5 & 3,4 \
\hline \text { Low } & 5,4 & 7,5 & 5,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-3. Identify Firm 2's dominant strategy.

Accepted Answer

A)  Its dominant strategy is medium prices. 
B)  Firm 2 does not have a dominant strategy. 
C)  Its dominant strategy is high prices. 
D)  Its dominant strategy could be high or medium prices depending on Firm 1's response. 
E)  Its dominant strategy is low prices. 
A)  Its dominant strategy is medium prices. 
B)  Firm 2 does not have a dominant strategy. 
C)  Its dominant strategy is high prices. 
D)  Its dominant strategy could be high or medium prices depending on Firm 1's response. 
E)  Its dominant strategy is low prices.

Question 16

Provide an example of a competitive situation where there is a second-mover advantage.

Accepted Answer

Suppose duopolists compete by setting pr

Question 17

Consider the following game: Two players must choose one of three options: rock, paper, or scissors. The winner is determined as follows: Paper slaps rock (and wins); rock crushes scissors (and wins); scissors cuts paper (and wins). If both players choose the same option, it results in a draw. Does the game have a dominant strategy? Does it have an optimal pure strategy?

Accepted Answer

As many will recognize quickly

Question 18

Predatory pricing is a practice of deliberately pricing at a loss in order to bankrupt a rival.
(a) Is predatory pricing rational?
(b) Should predatory pricing be illegal? Explain why or why not

Accepted Answer

Predatory pricing is an antitrust offens

Question 19

The following matrix gives the payoffs for Firm 1 and Firm 2 from three possible pricing strategies:
Table 10-1
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Firm } 2\
\begin{array} { | c | c | c | c | } 
\hline \text { Firm 1 } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { High } & 5,3 & 7,1 & 6,2 \
\hline \text { Medium } & 2,5 & 5,4 & 2,3 \
\hline \text { Low } & 4,4 & 3,3 & 4,2 \
\hline
\end{array}
\end{array}$
-Refer to Table 10-1. The payoff table represents a:

Accepted Answer

A)  prisoner's dilemma. 
B)  constant-sum game. 
C)  dominant strategy equilibrium. 
D)  sequential game. 
E)  price war. 
A)  prisoner's dilemma. 
B)  constant-sum game. 
C)  dominant strategy equilibrium. 
D)  sequential game. 
E)  price war.

Question 20

How does finite competition differ from infinite competition between rival firms?

Accepted Answer

In finite competition, firms have the in

A game tree diagram is used to represent:

The following table shows the payoffs for Firm 1 and Firm 2 in a zero-sum game: Table 10-2 Firm2 Firm 1 C1 C2 R1 4,5 10,4 R2 2,8 8,7 -Refer to Table 10-2. Identify the correct statement.

List and briefly explain the main entry deterrence policies that an oligopoly firm might employ to prevent other firms from entering a market.

Define the concept of Nash equilibrium. Why is it important?

List and explain the various forms of oligopolistic cooperation, which may benefit all firms, and lead to greater profitability.

A mixed strategy:

What is the role of information in a strategic game?

How do constant-sum games and non-constant-sum games differ from each other? Give an example of each.

For the payoff table listed, determine the equilibrium outcome. Does either firm have a dominant strategy? Firm 2 Firm 1 Low price High price Low price 28,12 48,20 High price 20,30 30,22

Why does the strategy of tit-for-tat support cooperative equilibrium?

Game theory offers insight into:

What is the dilemma in the prisoner's dilemma? What is the key assumption about behavior? Suggest one way to overcome the dilemma.

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-3 Firm 2 Firm 1 High Medium Low High 3,1 4,2 2,0 Medium 2,3 5,5 3,4 Low 5,4 7,5 5,2 -Refer to Table 10-3. Identify Firm 1's dominant strategy.

The following table lists the payoffs of two firms adopting three possible advertising strategies: Table 10-5 Firm 2 Firm 1 High Medium Low High 3,2 4,1 5,0 Medium 1,6 5,4 3,3 Low 0,4 5,5 6,2 -Refer to Table 10-5. The (Nash) equilibrium pair of strategies for Firms 1 and 2 is:

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-3 Firm 2 Firm 1 High Medium Low High 3,1 4,2 2,0 Medium 2,3 5,5 3,4 Low 5,4 7,5 5,2 -Refer to Table 10-3. Identify Firm 2's dominant strategy.

Provide an example of a competitive situation where there is a second-mover advantage.

Predatory pricing is a practice of deliberately pricing at a loss in order to bankrupt a rival. (a) Is predatory pricing rational? (b) Should predatory pricing be illegal? Explain why or why not

The following matrix gives the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-1 Firm 2 Firm 1 High Medium Low High 5,3 7,1 6,2 Medium 2,5 5,4 2,3 Low 4,4 3,3 4,2 -Refer to Table 10-1. The payoff table represents a:

How does finite competition differ from infinite competition between rival firms?

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters

Exam 10: Game Theory and Competitive Strategy

A game tree diagram is used to represent:

The following table shows the payoffs for Firm 1 and Firm 2 in a zero-sum game: Table 10-2 Firm2 Firm 1 C1 C2 R1 4,5 10,4 R2 2,8 8,7 -Refer to Table 10-2. Identify the correct statement.

List and briefly explain the main entry deterrence policies that an oligopoly firm might employ to prevent other firms from entering a market.

Define the concept of Nash equilibrium. Why is it important?

List and explain the various forms of oligopolistic cooperation, which may benefit all firms, and lead to greater profitability.

A mixed strategy:

What is the role of information in a strategic game?

How do constant-sum games and non-constant-sum games differ from each other? Give an example of each.

For the payoff table listed, determine the equilibrium outcome. Does either firm have a dominant strategy? Firm 2 Firm 1 Low price High price Low price 28,12 48,20 High price 20,30 30,22

Why does the strategy of tit-for-tat support cooperative equilibrium?

Game theory offers insight into:

What is the dilemma in the prisoner's dilemma? What is the key assumption about behavior? Suggest one way to overcome the dilemma.

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-3 Firm 2 Firm 1 High Medium Low High 3,1 4,2 2,0 Medium 2,3 5,5 3,4 Low 5,4 7,5 5,2 -Refer to Table 10-3. Identify Firm 1's dominant strategy.

The following table lists the payoffs of two firms adopting three possible advertising strategies: Table 10-5 Firm 2 Firm 1 High Medium Low High 3,2 4,1 5,0 Medium 1,6 5,4 3,3 Low 0,4 5,5 6,2 -Refer to Table 10-5. The (Nash) equilibrium pair of strategies for Firms 1 and 2 is:

The following table lists the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-3 Firm 2 Firm 1 High Medium Low High 3,1 4,2 2,0 Medium 2,3 5,5 3,4 Low 5,4 7,5 5,2 -Refer to Table 10-3. Identify Firm 2's dominant strategy.

Provide an example of a competitive situation where there is a second-mover advantage.

Predatory pricing is a practice of deliberately pricing at a loss in order to bankrupt a rival. (a) Is predatory pricing rational? (b) Should predatory pricing be illegal? Explain why or why not

The following matrix gives the payoffs for Firm 1 and Firm 2 from three possible pricing strategies: Table 10-1 Firm 2 Firm 1 High Medium Low High 5,3 7,1 6,2 Medium 2,5 5,4 2,3 Low 4,4 3,3 4,2 -Refer to Table 10-1. The payoff table represents a:

How does finite competition differ from infinite competition between rival firms?

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Linear Programming

Auctions and Competitive Bidding Available Online

Filters