Deck 7: Static Games With Continuous Strategies

Question 1

A reaction function is also called a:

A) Discrete function.
B) Continuous function.
C) Best-response function.
D) Dominant strategy.
E) Iterated strategy.

Answer 1

Best-response function.

Question 2

Suppose that the best-response pricing functions for firms A and B are P_A = 0.22 + 0.5P_B and P_B = 0.10 + 0.2P_A, respectively. The Nash equilibrium strategy profile for this static game with continuous strategies is:

A) {$0.30, $0.16}.
B) {$0.27, $0.15}.
C) {$0.22, $0.10}.
D) {$0.27, $0.16}.
E) None of the above are correct.

Answer 2

{$0.30, $0.16}.

Question 3

Suppose that an industry consists of two firms producing an identical product. The market demand for the combined output of both firms is (Q_A + Q_B) = 50 !P. The total cost function of each firm is TC_i = 1 + 10Q_i, where i = A,B. Firm A's best-response function is:

A) Q_A = 50 !Q_B.
B) Q_B = 50 !Q_A.
C) Q_A = 20 !0.5Q_B.
D) Q_B = 20 !0.5Q_A.
E) None of the above."

Answer 3

Q_A = 20 !0.5Q_B.

Question 4

Suppose that an industry consists of two firms producing an identical product. The market demand for the combined output of both firms is (Q_A + Q_B) = 50 !P. The total cost function of each firm is TC_i = 1 + 10Q_i, where i = A,B. Firm B's best-response function is:

A) Q_A = 50 !Q_B.
B) Q_B = 50 !Q_A.
C) Q_A = 20 !0.5Q_B.
D) Q_B = 20 !0.5Q_A.
E) None of the above."

Question 5

Suppose that an industry consists of two firms producing an identical product. The market demand for the combined output of both firms is (Q_A + Q_B) = 50 !P. The total cost function of each firm is TC_i = 1 + 10Q_i, where i = A,B. The Nash equilibrium strategy profile for this game is:

A) {10, 10}.
B) {13.33, 13.33}
C) {16.67, 16.67}.
D) {20, 20}.
E) {38, 38}."

Question 6

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 100 !0.2P. The total cost function of each firm is TC_i = 100 + 200Q_i, where i = A,B. Firm A's best-response function is:

A) Q_A = 50 !0.25Q_B.
B) Q_A = 25 !0.2Q_B.
C) Q_A = 25 !0.3Q_B.
D) Q_A = 30 !0.5Q_B.
E) None of the above."

Question 7

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 100 !0.2P. The total cost function of each firm is TC_i = 100 + 200Q_i, where i = A,B. Firm B's best-response function is:

A) Q_B = 30 !0.5Q_A.
B) Q_B = 25 !0.3Q_A.
C) Q_B = 25 !0.2Q_A.
D) Q_B = 50 !0.25Q_A.
E) None of the above."

Question 8

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 100 !0.2P. The total cost function of each firm is TC_i = 100 + 200Q_i, where i = A,B. The Nash equilibrium strategy profile for this game is:

A) {10, 10}.
B) {13.33, 13.33}
C) {16.67, 16.67}.
D) {20, 20}.
E) {38, 38}."

Question 9

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 500 !0.5P. The total cost function of each firm is TC_i = 250 + 50Q_i, where i = A,B. Firm A's best-response function is:

A) Q_A = 250 !0.5Q_B.
B) Q_A = 250 !0.25Q_B.
C) Q_A = 50 !0.5Q_B.
D) Q_A = 100 !0.5Q_B.
E) Q_A = 100 !0.25Q_B."

Question 10

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 500 !0.5P. The total cost function of each firm is TC_i = 250 + 50Q_i, where i = A,B. Firm B's best-response function is:

A) Q_B = 200 !0.25Q_A.
B) Q_B = 600 !0.5Q_A.
C) Q_B = 50 !0.5Q_A.
D) Q_B = 250 !0.25Q_A.
E) Q_B = 250 !0.5Q_A."

Question 11

An industry consists of two firms producing identical goods. The market demand for the combined output of both firms is (Q_A + Q_B) = 500 !0.5P. The total cost function of each firm is TC_i = 250 + 50Q_i, where i = A,B. The Nash equilibrium strategy profile for this game is:

A) {75, 75}.
B) {133.33, 133.33}
C) {166.67, 166.67}.
D) {250, 250}.
E) {500, 500}."

Question 12

The "tragedy of the commons":

A) May arise when private property rights are not well defined.
B) Arises from a conflict between individual self interests and the social welfare.
C) Is an example of market failure arising from public goods.
D) All of the above.
E) None of the above.

Question 13

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $200 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $50. How many fish will benefit-maximizing individual A catch?

A) 33.3
B) 50
C) 66.7
D) 75
E) 100"

Question 14

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $200 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $50. How many fish will individual B catch?

A) 33.3
B) 50
C) 66.7
D) 75
E) 100"

Question 15

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $200 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $50. What is total fish production?

A) 200
B) 150
C) 133.33
D) 100
E) 66.67"

Question 16

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $200 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $50. How many fish will maximize social welfare?

A) 33.3
B) 50
C) 66.7
D) 75
E) 100"

Question 17

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $50 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $20. How many fish will individual A catch?

A) 10
B) 15
C) 20
D) 25
E) 30"

Question 18

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $50 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $20. How many fish will individual B catch?

A) 10
B) 15
C) 20
D) 25
E) 30"

Question 19

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $50 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $20. What is total fish production?

A) 60
B) 50
C) 40
D) 30
E) 20"

Question 20

Suppose that the land surrounding a lake is owned by individuals A andB. Both individuals use the lake to earn a living from fishing, where f_A and f_B represent the total amount of fish extracted from the lake from the two individuals. The benefit from each fish is $50 ! f_A !f_B. The marginal cost of fishing for each profit-maximizing individual is $20. How many fish will maximize social welfare?

A) 10
B) 15
C) 20
D) 25
E) 30"

Question 21

In the case of a negative externality, social marginal cost:

A) Exceeds private marginal cost.
B) Equals private marginal cost.
C) Is less than private marginal cost.
D) Is not related to private marginal cost.
E) It is not possible to answer this question without additional information about the structure of the industry.

Question 22

A perfectly competitive chemical plant dumps large amounts of waste into a nearby river. From society's perspective, the chemical plant:

A) Is producing too much.
B) Is not producing enough.
C) Is producing just the right amount.
D) Will produce more steel after it installs pollution control equipment.
E) Will produce less if local government imposes a pollution tax.

Question 23

To achieve a socially efficient level of output, government should impose a pollution tax that is equal to:

A) Private marginal cost.
B) Private social cost.
C) Marginal externality cost.
D) An amount that is necessary to reduce the level of pollution to zero.
E) An amount that will maximize consumer surplus.

Question 24

The Coase theorem asserts that:

A) Government taxation of production is necessary for the socially efficient allocation of productive resources.
B) Government should not intervene in the market to promote a socially efficient allocation of productive resources.
C) Government should compensate groups harmed by negative externalities by taxing groups that have benefitted by creating negative externalities.
D) A socially efficient allocation of productive resources in a market economy is possible provided that private property rights are well defined.
E) None of the above. The Coase theorem deals with problems arising from asymmetric information.