Deck 9: Thinking Strategically

Question 1

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.The Nash equilibrium for this game is that

A) Joe will cut his price and Sam will not.
B) Joe will cut his price and Sam might.
C) Sam will cut his price and Joe will not.
D) neither will cut their price.
E) both will cut the price to 90 cents per litre.

Answer 1

both will cut the price to 90 cents per litre.

Question 2

A dominated strategy is one that

A) leads to a higher payoff,regardless of the other player's choice.
B) leads to a lower payoff,regardless of the other player's choice.
C) is always selected.
D) contains the set of all possible strategies.
E) is present in all games.

Answer 2

leads to a lower payoff,regardless of the other player's choice.

Question 3

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
A Nash equilibrium must result in

A) both players being made better off.
B) both players being made worse off.
C) one player being worse off and one being better off.
D) dominated strategies for both players.
E) neither player wishing to change his or her strategy.

Answer 3

neither player wishing to change his or her strategy.

Question 4

The key feature that requires the use of game theory to comprehend behaviour is

A) profit maximization.
B) limited information.
C) time.
D) utility maximization.
E) interdependence.

Question 5

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
If both players of a game choose the best strategy available given the other player's strategies,the result is a(n)

A) dominant strategy.
B) dominated strategy.
C) Nash equilibrium.
D) ultimatum equilibrium.
E) Rambler equilibrium.

Question 6

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.Player A finds that

A) strategy Z is a dominated strategy.
B) strategy X is a dominant strategy.
C) strategy Z is a dominant strategy.
D) he has no dominant strategy.
E) his best strategy depends on what player B chooses.

Question 7

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Which of the following is NOT true of a Nash equilibrium in a game involving players A and B?

A) Given the strategies of B,player A has chosen the highest payoff strategy.
B) Neither player A nor player B wants to choose a different strategy.
C) Both players would not wish to change their choices.
D) Both players must have dominant strategies.
E) Given the strategies of A,player B has chosen the highest payoff strategy.

Question 8

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.Player B finds that

A) strategy Z is a dominated strategy.
B) strategy X is a dominant strategy.
C) strategy Z is a dominant strategy.
D) strategy X is a dominated strategy.
E) he has no dominant strategy.

Question 9

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.In this game,the strategies available to Joe are

A) cut price to 90 cents per litre.
B) leave price at $1 per litre.
C) cut price to 85 cents per litre.
D) cut price to some extent or leave price at $1 per litre.
E) cut price to 90 cents per litre or leave price at $1 per litre.

Question 10

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.To Sam,cutting his price to 90 cents per litre is a(n)

A) submissive strategy.
B) dominant strategy.
C) dominated strategy.
D) disequilibrium.
E) profit-maximizing strategy.

Question 11

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.In this game,the strategies available to Sam are

A) the same as those available to Joe.
B) cut price to 90 cents per litre.
C) leave price at $1 per litre.
D) raise price to $1.10 per litre.
E) cut price by some amount or leave it unchanged.

Question 12

Game theory is important in understanding

A) how perfectly competitive firms behave.
B) production decisions by firms.
C) consumer demand.
D) interdependence and choice.
E) the behaviour of a pure monopolist.

Question 13

A game consists of

A) the players,the possible strategies,and the payoffs to each strategy.
B) the players and the possible strategies.
C) the possible strategies and the payoffs to each strategy.
D) the players and the payoffs to each strategy.
E) the payoffs to each strategy.

Question 14

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.The payoffs to Joe in this game are

A) $900 and $500.
B) $1000 and $500.
C) $1350 and $900.
D) $1350,$1000,$900,and $500.
E) $1350 and $1000.

Question 15

A dominant strategy occurs when

A) one player has a strategy that yields the highest payoff independent of the other player's choice.
B) both players have a strategy that yields the highest payoff independent of the other's choice.
C) both players make the same choice.
D) the payoff to a strategy depends on the choice made by the other player.
E) each player has a single strategy.

Question 16

Which of the following circumstances does NOT involve game theory?

A) A local gas station owner wondering how his competition across the street will react to his decision to lower prices.
B) Buying a can of beef stew at the grocery store.
C) Negotiating a salary when two firms have made offers.
D) Deciding whether to have an extramarital affair.
E) Playing poker.

Question 17

A payoff matrix

A) shows only the players of the game.
B) shows only the possible strategies of the game.
C) summarizes most of the elements of a game.
D) shows only the payoffs to each of the strategies.
E) completely summarizes the three elements of a game.

Question 18

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.If Joe and Sam both choose their dominated strategies,their combined revenue would be ________ higher than if they both choose their dominant strategies.

A) $0
B) $150
C) $200
D) $350
E) an indeterminate amount

Question 19

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.To Joe,leaving his price at $1 per litre is a(n)

A) submissive strategy.
B) dominant strategy.
C) dominated strategy.
D) equilibrium.
E) profit-maximization strategy.

Question 20

Joe is the owner of the PetroCanada Mini Mart,Sam is the owner of the BP Mini Mart,and together they are the only gas stations in town.At the current price of $1 per litre,each receives total revenue of $1000.Joe is considering cutting his price to 90 cents per litre,which would increase his total revenue to $1350.If Sam's price remains at $1 per litre after Joe cuts his price,Sam will collect $500 in revenue.If Sam cuts his price to 90 cents per litre,his total revenue would also rise to $1350 if Joe continues to charge $1 per litre.Joe will collect $500 in revenue if he keeps his price at $1 per litre while Sam lowers his to 90 cents per litre.Joe and Sam will receive $900 each in total revenue if they both lower their price to 90 cents per litre.You may find it easier to answer the following questions if you fill in the payoff matrix below.
Refer to the information given above.To both Joe and Sam,__________ is a(n)__________.

A) cutting price to 90 cents per litre;disequilibrium
B) leaving price at $1 per litre;Nash equilibrium
C) leaving price at $1 per litre;dominant strategy
D) cutting price to 90 cents per litre;Nash equilibrium
E) cutting price to 90 cents per litre;strategy that makes them both better off

Question 21

The table below shows the payoff matrix in the form of short-run profit for two firms,A and B,for two different strategies,investing in new capital or not investing.
Refer to the payoff matrix above.For firm B,

A) investing is its dominated strategy.
B) not investing is its dominated strategy.
C) it has no dominated strategy.
D) not investing is its dominant strategy.
E) it has no dominant strategy.

Question 22

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.The strategies in this game are

A) to increase output.
B) to cheat.
C) to stick to the agreement.
D) to either stick to the agreement or to cheat.
E) both to stick to the agreement and to cheat.

Question 23

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Which of the following is NOT a requirement of a game?

A) Players.
B) Payoffs.
C) Dominant strategies.
D) Strategies.
E) Knowledge of the payoffs.

Question 24

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.To Mexico,the payoff to cheating is

A) $60 million.
B) $80 million.
C) $80 million or $110 million.
D) $100 million or $110 million.
E) $110 million.

Question 25

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Refer to the payoff matrix above.Celia finds that

A) she has no dominant strategy.
B) seeing Das Auto is her dominant strategy.
C) seeing movies with Jim makes her worse off than seeing movies alone.
D) seeing Rambo X is her dominant strategy.
E) seeing Rambo X is her dominated strategy.

Question 26

The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies,A and B.
Refer to the payoff matrix above.Firm X concludes that strategy

A) B is its dominated strategy.
B) A is its dominated strategy.
C) B is its dominant strategy.
D) B and strategy A are both dominant.
E) B and strategy A are both dominated.

Question 27

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Game theory was developed in order to understand

A) how to win more at gambling.
B) why agreements to fix output between firms fail.
C) how the police can get suspects to confess.
D) why the U.S.and Russia continue to build more nuclear weapons.
E) how choices affect outcomes when the players are interdependent.

Question 28

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.This game has

A) no Nash equilibrium.
B) a Nash equilibrium because both players pick strategy X.
C) a Nash equilibrium because A picks strategy Z and B picks strategy X.
D) a Nash equilibrium because both players have made the best choice available to them.
E) a Nash equilibrium if both players pick strategy Z.

Question 29

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Refer to the payoff matrix above.This game has __________ potential equilibrium outcomes.

A) 0
B) 1
C) 2
D) 3
E) 4

Question 30

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.To OPEC,the payoff to not cheating is

A) $150 million or $200 million.
B) $175 million or $185 million.
C) $185 million.
D) $200 million.
E) $200 million or $185 million.

Question 31

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Game theory is not useful in understanding perfect competition because

A) by assumption,the firms are so small as to be unable to influence price and thus are not interdependent.
B) perfectly competitive firms are honest.
C) the players cannot be identified.
D) the payoffs to their choices are unknown.
E) their strategies cannot be understood.

Question 32

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Which of the following situations does NOT involve game theory?

A) Buying a pair of pants at the Gap.
B) Members of Parliament deciding to spend more on warships.
C) A married couple choosing to have a second child.
D) A student considering cheating on this exam.
E) Intel debating whether to lower the price of its Celeron microprocessors.

Question 33

Interdependence is an important consideration when modelling the behaviour of

A) consumers.
B) strangers.
C) perfectly competitive firms.
D) monopolies.
E) oligopolies.

Question 34

The table below shows the payoff matrix in the form of short-run profit for two firms,A and B,for two different strategies,investing in new capital or not investing.
Refer to the payoff matrix above.The game is an example of a(n)

A) cartel.
B) indeterminate game.
C) prisoner's dilemma.
D) credible promise.
E) multiple equilibria game.

Question 35

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.OPEC finds that it has

A) a dominant strategy of cheating.
B) a dominated strategy of cheating.
C) a dominant strategy of not cheating.
D) a dominated strategy of not cheating.
E) no dominant strategy.

Question 36

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.Mexico finds that it has

A) no dominant strategy.
B) a dominant strategy.
C) no dominated strategy.
D) a dominant strategy of cheating.
E) a dominated strategy of not cheating.

Question 37

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.The outcome of this game is

A) unknown.
B) a Nash equilibrium with both Mexico and OPEC cheating.
C) a Nash equilibrium with Mexico cheating and OPEC not cheating.
D) a Nash equilibrium with Mexico not cheating and OPEC cheating.
E) a Nash equilibrium with both Mexico and OPEC not cheating.

Question 38

Suppose Jim and Celia,a married couple,are trying to decide what to do on a Friday.Jim would prefer to see Rambo X while Celia would prefer to see Das Auto,an arty foreign film.Both films are showing at the local Megaplex.The joy they receive from the films and seeing them together,or separately,is shown in the payoff matrix.Both Jim and Celia know the information contained in the payoff matrix.They purchase their tickets simultaneously,ignorant of the other's choice.
Refer to the payoff matrix above.For Jim,seeing

A) Rambo X is a dominant strategy.
B) movies alone is better than seeing movies with Celia.
C) Das Auto is a dominant strategy.
D) movies with Celia is worse than seeing movies alone.
E) movies alone is worse than seeing movies with Celia.

Question 39

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.This game results in player A __________ and player B __________.

A) choosing strategy X;choosing strategy Z
B) choosing strategy Z;choosing strategy Z
C) choosing strategy Z;choosing strategy X
D) choosing strategy X;choosing strategy X
E) choosing strategy Z;refusing to play the game

Question 40

The table below shows the payoff matrix in the form of short-run profit for two firms,A and B,for two different strategies,investing in new capital or not investing.
Refer to the payoff matrix above.The outcome of the game is __________ with __________.

A) not a Nash equilibrium;both firms not investing
B) a Nash equilibrium;both firms not investing
C) a Nash equilibrium;firm A investing and firm B not investing
D) not a Nash equilibrium;two possible equilibria
E) a Nash equilibrium;both firms investing

Question 41

Which of the following are conditions for successful collusion? 1.There are few firms in the industry.
2)Secret price cutting by individual members is detectable and punishable.
3)There exists a Nash equilibrium prior to the formation of a cartel.

A) All of these conditions.
B) Conditions 1 and 2 only.
C) Conditions 2 and 3 only.
D) Conditions 1 and 3 only.
E) Condition 2 only.

Question 42

The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies,A and B.
Refer to the payoff matrix above.How much would firm Z have to pay firm X to get it to choose strategy B?

A) $0.
B) $100.
C) $200.
D) $300.
E) $400.

Question 43

The prisoner's dilemma refers to games where

A) neither player has a dominant strategy.
B) one player has a dominant strategy and the other does not.
C) both players have a dominant strategy.
D) both players have a dominant strategy that results in the largest possible payoff.
E) both players have a dominant strategy that results in a lower payoff than their dominated strategies.

Question 44

The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies,A and B.
Refer to the payoff matrix above.Suppose all the payoffs to strategies A and B double for both firms.The outcome of the game

A) remains the same.
B) reverses itself.
C) is a prisoner's dilemma.
D) suffers from a commitment problem.
E) may or may not change.

Question 45

When an oligopolistic firm advertises its products,its demand curve shifts rightward because

A) its products are now cheaper.
B) other firms also advertise their products.
C) customers may switch brands in favour of the advertised products.
D) new customers who did not previously use the products may now purchase the advertised products.
E) customers may switch brands in favour of the advertised products,and new customers who did not previously use the products may now purchase the advertised products.

Question 46

For a game involving players A and B with strategies X and Z,which of the following is NOT a requirement for a prisoner's dilemma?

A) Player A must have a dominant strategy.
B) Player B must have a dominant strategy.
C) The payoff to playing their dominated strategies must be more than the payoff to their dominant strategies.
D) The payoff to playing their dominant strategies must be more than the payoff to their dominated strategies.
E) A Nash equilibrium must exist.

Question 47

One of the reasons why a wheat cartel would not be as successful as OPEC is that

A) there are many more wheat-producing countries than oil-producing countries.
B) there are more wheat substitutes than oil substitutes.
C) there is no competition legislation against wheat cartels.
D) there is stronger competition legislation against wheat cartels than against OPEC.
E) there are solid barriers against new entrants into a wheat cartel.

Question 48

The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies,A and B.
Refer to the payoff matrix above.Strategy B is

A) dominated for firm Z.
B) dominant for firm X.
C) dominated for both firms.
D) dominant for both firms.
E) dominant for firm Z.

Question 49

The market demand shown in the diagram above represents the demand curve shared by two non-collusive and independent firms of equal size and efficiency,each with zero marginal cost.If neither of the existing firms wants to change the situation,to ensure a stable and profitable market for both firms,each firm will produce ___ bottles/day and each will charge a price of ____/bottle.

A) 1100;$0.90
B) 1000;$0.90
C) 1000;$1.00
D) 500;$1.00
E) 500;$1.50

Question 50

Two competitive firms are located side by side.If firm A advertises,firm B will get new customers too,even though it does not have to pay for the advertising cost.The same scenario is true for A if B advertises.If both advertise,the amount of extra revenue generated would just offset the advertising costs.In such case,game theory suggests

A) that only A will advertise.
B) that only B will advertise.
C) that both A and B will advertise.
D) that neither A nor B will advertise.
E) nothing in terms of predicting the outcome of the game.

Question 51

Suppose the demand curve shown in the diagram above represents the demand curve for a profit-maximizing cartel with two rival firms of equal size and efficiency,each with zero marginal cost.If the market price is currently set at $1.00 and it is difficult to detect price-altering activities,the dominant strategy for each firm is to

A) raise price to gain market share.
B) lower price in order to increase society's surplus.
C) lower price in order to increase its profit.
D) lower price in order to capture the entire market.
E) lower price both in order to increase its profit and to capture the entire market.

Question 52

In the cola industry,all existing firms spend a large amount on advertising just to discourage their customers from switching to other brands.When each firm chooses the dominant strategy to advertise,the resulting payoffs are

A) smaller than if each had cut its advertising budget.
B) larger than if each had cut its advertising budget.
C) the same whether each had cut its advertising budget or not.
D) larger for larger firms only if these large firms cut their advertising budgets.
E) larger for smaller firms only if these smaller firms cut their advertising budgets.

Question 53

A cartel's profit-maximizing price and output will be identical to the decision of

A) a monopolist.
B) a perfectly competitive firm.
C) a perfectly competitive industry.
D) the largest firm within the perfectly competitive market.
E) the largest firm before the cartel was formed.

Question 54

Three firms join forces and form a cartel.The market price set by the cartel will be equivalent to the price set by a

A) monopolist.
B) monopolistically-competitive firm.
C) perfectly-competitive firm.
D) duopolist.
E) perfect price-discriminating monopolist.

Question 55

Suppose the diagram shown above represents the demand curve and the marginal revenue curve for a profit-maximizing cartel with two rival firms of equal size and efficiency,each with zero marginal cost.The market price is currently set at $1.00,and each firm is given a quota to sell 500 bottles/day.Suppose that price-cutting activities are difficult to detect and that each firm believes that it can out-perform the other firm.Why does each firm have an incentive to lower its price? 1.Each firm has marginal revenue higher than marginal cost.
2)Each firm is trying to get out of the diminishing marginal returns situation.
3)Each firm can earn extra profit by lowering its price.

A) All of these are true.
B) Only 1 is true.
C) Only 2 is true.
D) Only 3 is true.
E) Only 1 and 3 are true.

Question 56

Suppose the market demand curve shown in the diagram above represents a cartel's demand curve.Given zero marginal cost,we expect the market price to be ___,with ____ bottles of water sold per day.

A) $2.00;2,000
B) $2.00;1,000
C) $1.50;500
D) $1.00;1,000
E) $1.00;500

Question 57

In a duopoly,if one firm increases its price,then the other firm can

A) keep its price constant and thus increase its market share.
B) keep its price constant and thus decrease its market share.
C) increase its price and thus increase its market share.
D) decrease its price and thus decrease its market share.
E) keep its price constant and thus maintain a constant market share.

Question 58

Games in which players find that playing their dominant strategies results in a lower payoff than playing their dominated strategies is called

A) a Nash equilibrium.
B) disequilibrium.
C) a prisoner's dilemma.
D) an ultimatum equilibrium.
E) an unfair game.

Question 59

Two competitive firms are located side by side.If firm A advertises,firm B will get new customers too,even though it does not have to pay for the advertising cost.The same scenario is true for A if B advertises.If both advertise,the amount of extra revenue generated would just offset the advertising costs.This is a situation where there exists a

A) dominant strategy.
B) Nash equilibrium.
C) prisoner's dilemma.
D) collusive tendency.
E) dominant decision tree.

Question 60

The payoff matrix below shows the extra profit firms X and Z will earn from two different strategies,A and B.
Refer to the payoff matrix above.Suppose all the payoffs to strategies A and B double for only firm X.The outcome of the game

A) remains the same.
B) reverses itself.
C) is a prisoner's dilemma.
D) suffers from a commitment problem.
E) may or may not change.

Question 61

Cheating by firms that belong to a cartel is an example of

A) profit maximization.
B) the need for stronger competition legislation.
C) perfect competition.
D) the prisoner's dilemma.
E) the equilibrium principle.

Question 62

A cartel is

A) another name for pure monopoly.
B) a coalition of consumers.
C) a highly stable arrangement.
D) a coalition of firms that agree to restrict output in an effort to earn higher profit.
E) an agreement between countries to reduce trade.

Question 63

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.This game would __________ because __________.

A) be a prisoner's dilemma;not cheating is better for both
B) not be a prisoner's dilemma;cheating is better for both
C) be a prisoner's dilemma;cheating is better for both
D) be a prisoner's dilemma;Mexico has a dominant strategy
E) not be a prisoner's dilemma;OPEC does not have a dominant strategy

Question 64

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.Player A finds that strategy X is __________ and player B finds that strategy X is __________.

A) dominant;dominated
B) dominated;dominant
C) dominant;dominant
D) dominated;dominated
E) dominated;neither dominant nor dominated

Question 65

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Based on the payoff matrix above,Bagels 'R' Us finds that __________ is its __________.

A) abiding by the agreement;dominated strategy
B) cheating on the agreement;dominated strategy
C) abiding by the agreement;dominant strategy
D) either cheating or abiding;dominant strategy
E) neither cheating nor abiding;dominant strategy

Question 66

An agreement among firms to restrict production with the goal of earning higher profit is a(n)

A) pure monopoly.
B) oligopoly.
C) cartel.
D) duopoly.
E) imperfectly-competitive industry.

Question 67

Cartels would be more stable if

A) firms that cheat on the agreement could be legally punished.
B) firms that cheat on the agreement were better informed about the value of the agreement.
C) many firms of different sizes were involved.
D) demand for the output was more variable.
E) the member firms were located in different countries.

Question 68

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Refer to the payoff matrix above.Suppose a new element was introduced into the agreement: if one firm cheats today,the other firm will cheat tomorrow but if one firm abides today,the other will abide tomorrow.This strategy pattern is known as

A) the prisoner's dilemma
B) cartel-like behavior
C) tit-for-tat.
D) mutual cooperation
E) incredible promise.

Question 69

The table below shows the payoffs to the running of negative and clean political ads by two political candidates.The payoffs are the increase or decrease in the number of voters willing to vote for the candidate.
Given the payoff matrix,the Nash equilibrium will be

A) both Ignatieff and Harper run clean ads.
B) Ignatieff runs clean ads and Harper runs negative ads.
C) indeterminate.
D) Ignatieff runs negative ads and Harper runs clean ads.
E) both Ignatieff and Harper run negative ads.

Question 70

The reason most cartels end or cease to be effective is

A) enforcement of antitrust legislation.
B) the development of substitutes.
C) one of the member firms absorbs the other firms.
D) consumers discover the agreement and buy from other firms.
E) the incentive to cheat on the agreement.

Question 71

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Based on the payoff matrix above,Bagel World finds that __________ is its __________.

A) abiding by the agreement;dominant strategy
B) cheating on the agreement;dominated strategy
C) either cheating or abiding;dominant strategy
D) cheating on the agreement;dominant strategy
E) either cheating or abiding;dominated strategy

Question 72

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Refer to the payoff matrix above.If the two firms were both to choose their dominated strategies,their combined revenue would be ________ higher than if they were to choose their dominant strategies.

A) $80
B) $45
C) $40
D) $10
E) $5

Question 73

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Refer to the payoff matrix above.Suppose a new element was introduced into the agreement: if one firm cheats today,the other firm will cheat tomorrow but if both abide today,both will abide tomorrow.The likely effect would be to

A) increase the probability that both firms would cheat.
B) increase the probability that Bagel World would cheat.
C) increase the probability that both firms would abide.
D) increase the probability that Bagels 'R' Us would cheat.
E) change nothing about the game.

Question 74

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Refer to the payoff matrix above.This game is __________ because __________.

A) not a prisoner's dilemma;both firms cheating has the highest payoff
B) a prisoner's dilemma;both firms abiding has the highest payoff
C) a prisoner's dilemma;both firms cheating has the highest payoff
D) not a prisoner's dilemma;neither firm has a dominant strategy
E) not a prisoner's dilemma;neither firm has a dominated strategy

Question 75

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.Suppose OPEC told Mexico that,in the event Mexico cheats on the agreement,OPEC will cheat as well,but if Mexico does not cheat,neither will OPEC.This is an example of

A) a commitment problem.
B) a credible threat.
C) an empty promise.
D) using preferences as a solution to a commitment problem.
E) an empty threat.

Question 76

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
Refer to the information given above.Suppose OPEC told Mexico that,in the event Mexico cheats on the agreement,OPEC will cheat as well,but if Mexico does not cheat,neither will OPEC.The outcome of the game is now

A) both will cheat.
B) Mexico will cheat and hope OPEC does not.
C) OPEC will cheat.
D) neither will cheat.
E) indeterminate.

Question 77

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.The outcome of this game would be classified as a

A) prisoner's dilemma because the players play their dominant strategies.
B) prisoner's dilemma because playing their dominated strategies would increase the players' payoffs.
C) Nash equilibrium because both players have dominant strategies.
D) disequilibrium.
E) prisoner's dilemma because both players choose the same strategy.

Question 78

The table below shows the payoffs to the running of negative and clean political ads by two political candidates.The payoffs are the increase or decrease in the number of voters willing to vote for the candidate.
Given the payoff matrix,running negative ads is __________ for __________.

A) a dominated strategy;Harper
B) a dominated strategy;Ignatieff
C) a dominant strategy;Harper
D) neither a dominant or dominated strategy;Ignatieff
E) neither a dominant or dominated strategy;Harper

Question 79

The table below shows the payoff matrix for players A and B to strategies X and Z.
Refer to the payoff matrix above.This game results in which of the following outcomes?

A) A Nash equilibrium with player A choosing strategy Z and player B choosing strategy X.
B) A Nash equilibrium with player A choosing strategy X and B choosing strategy Z.
C) There is no equilibrium with both players choosing strategy Z.
D) A Nash equilibrium with both players choosing strategy Z.
E) A Nash equilibrium with both players choosing strategy X.

Question 80

The market for bagels in Charlottetown,PEI contains two firms: BagelWorld (BW)and Bagels'R'Us (BRU).The owners of the two firms decide to fix the price of bagels.The table shows the total revenue the firms will collect if they abide by the price-setting agreement or if they cheat on the agreement.
Given the payoff matrix above,this game has __________ with __________.

A) a Nash equilibrium;both firms abiding by the agreement
B) no equilibrium;no prediction about which strategy will be chosen
C) a Nash equilibrium;both firms cheating
D) a Nash equilibrium;Bagel World cheating and Bagels 'R' Us abiding
E) a Nash equilibrium;Bagel World abiding and Bagels 'R' Us cheating