Question 1

Bargaining does NOT normally occur in

Accepted Answer

A) vertical business relationships. 
B) wages and working conditions under a union contract. 
C) posted price markets. 
D) the legal system.

Question 2

A game in economics is defined as

Accepted Answer

A) something that is shown on ESPN. 
B) competition in which strategic decision making is integral. 
C) competition in general. 
D) an actual strategy chosen by one or more economic agents.

Question 3

Which of the following can always be used to determine the outcome when there are multiple Nash equilibria?

Accepted Answer

A) the Pareto Criterion 
B) cheap talk 
C) Both A and B 
D) None of the above.

Question 4

The figure shows the payoff for two firms, A and B, that must each choose to sell either at a high or low price. Determine the dominant strategies for each firm (if any)and the Nash equilibria (if any).

Accepted Answer

The answer of The figure shows the payoff for two...

Question 5

A strategy in which a player uses probabilities to decide which strategy to use is called a

Accepted Answer

A) pure strategy. 
B) mixed strategy. 
C) Pareto strategy. 
D) coin flip strategy.

Question 6

A game includes

Accepted Answer

A) a strategy. 
B) payoffs. 
C) rules. 
D) All of the above.

Question 7

The term prisoners' dilemma refers to a game in which

Accepted Answer

A) there are no Nash equilibria. 
B) there are no dominant strategies. 
C) the payoff from both players playing their dominant strategies is the same for each player. 
D) the payoff from both players playing their dominant strategies is not the highest payoff possible.

Question 8

A Nash bargaining solution

Accepted Answer

A) is not the same as a Nash equilibrium. 
B) is derived from a Nash equilibrium. 
C) gives a solution in both cooperative and non-cooperative games. 
D) None of the above.

Question 9

A dominated strategy

Accepted Answer

A) exists when one firm is weaker than another. 
B) only occurs in a mixed strategy scenario. 
C) is one that is never used by a rational actor. 
D) is a characteristic of games with multiple Nash equilibria.

Question 10

The winner's curse occurs when

Accepted Answer

A) bidders "shade" their bids. 
B) the winning bid is higher than the good's common value. 
C) the winner buys something he didn't need. 
D) the winning bid is higher than the private value of the good.

Question 11

Strategic advertising in the cola market

Accepted Answer

A) significantly expands the size of the market. 
B) brings in few new customers and primarily shifts market share among rivals. 
C) shifts market demand to the right, increasing quantity sold and decreasing prices. 
D) has no impact on the market.

Question 12

-The above figure shows a payoff matrix for two firms, A and B, that must choose between selling basic computers or advanced computers. How many Nash equilibria are there?

Accepted Answer

A) 0 
B) 1 
C) 2 
D) 4

Question 13

In game theory, a strategy

Accepted Answer

A) is useless, because firms are subject to bounded rationality. 
B) is useful in static games, but not in dynamic games. 
C) defines the specific actions a firm will make. 
D) determines the payoff matrix of the game.

Question 14

A disagreement point is

Accepted Answer

A) an item of contention between the two bargaining players. 
B) a way of keeping score in a negotiation. 
C) the point in a negotiation where the players cannot reach an agreement. 
D) the outcome that occurs if there is no agreement in a bargain.

Question 15

Suppose two firms, A and B, are simultaneously considering entry into a new market. If neither enters, both earn zero. If both enter, they both lose 100. If one firm enters, it gains 50 while the other earns zero. Set up the payoff matrix for this game and determine if any Nash equilibria exist. Can you predict the outcome? What if firm A gets to decide first?

Accepted Answer

The answer of Suppose two firms, A and B, are...

Question 16

If each player in a game uses a strategy that results in a Nash equilibrium outcome, the players are most likely to say

Accepted Answer

A) "I don't like my choice, because I think I could have done better." 
B) "Given the strategies chosen by the other players in the game, I probably could have done better if I had more time." 
C) "Given the strategies chosen by the other players in the game, I made the best possible choice." 
D) "There was no real strategy on my part, I basically made an educated guess."

Question 17

-The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. Both firms setting a high price is NOT a Nash equilibrium because

Accepted Answer

A) setting a high price is the dominant strategy for each firm. 
B) neither firm can improve its payoff by setting a low price given that the other firm is setting a high price. 
C) there is no dominant strategy for either firm. 
D) both firms can improve their payoff by setting a low price given that the other firm is setting a high price.

Question 18

In Dutch or first-price sealed-bid auctions, participants will bid less than their highest valuation.

Accepted Answer

A) True 
 B)False

Question 19

Common knowledge in game theory

Accepted Answer

A) is information known to be known by all players. 
B) is required for dynamic games. 
C) is complete. 
D) Both A and B.

Question 20

-The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, which one of the following statements is TRUE?

Accepted Answer

A) Only firm A will enter the market. 
B) Only firm B will enter the market. 
C) Neither firm entering is a Nash equilibrium. 
D) The outcome of the game is unpredictable.

Exam 12: Game Theory and Business Strategy