Deck 10: Games, Information and Strategy

Question 1

Tacit collusion is collusion without a formal agreement or illegal communications among firms.

Answer 1

True

Question 2

A one-shot game is a game wherein each player has complete knowledge of what their rivals will do and has only one opportunity to pursue their chosen strategy prior to the game's end.

Answer 2

False

Question 3

An iterative dominance strategy is one that is chosen by examining possible game outcomes and identifying dominated rival strategies.

Answer 3

True

Question 4

Given the following table, Tim's Treasures has a dominant strategy.

Question 5

A dominant strategy is one that is best for the player no matter the choice exercised by the player's rival.

Question 6

A game tree is a diagram that maps out a game using decision nodes and branches.

Question 7

A credible threat is the threat of an action that a rival actually has the ability to carry out.

Question 8

Given the following tables, Nancy's Nook has a dominated strategy.

Question 9

A dominated strategy is one that is best for the player no matter the choice exercised by the player's rival.

Question 10

A strategy is a choice or a sequence of choices made by a decision maker who has incurred the opportunity cost of that choice which may change based on how rivals react to that choice.

Question 11

A first mover advantage in a sequential game is a beneficial outcome that accrues to the player who exercises the first strategic choice.

Question 12

The following table is for two martial arts companies that are trying to determine if they should open a new store in Alaska. Given the information in the table, Kirk's Kickboxing will be the firm to enter the market first.

Question 13

Given the following table, Tim's Treasures can determine that maintaining price is a dominated strategy for Nancy's Nook and that Nancy's will not choose it. Since Nancy's will not choose it, Tim's strategy will be to discount.

Question 14

Given the following table, Nash Equilibrium occurs in the lower right hand cell.

Question 15

The following table is for two towel companies. They each offer cotton towels that are highly absorbent and fluffy even though they are made from different cottons. Since every household uses towels, these firms believe that there will always be a tomorrow for their product. Both Tom and Cathy have agreed to charge high prices in order to make a more than normal profit. For both firms, defecting from their agreement is a better choice than collusion.

Question 16

The following table is for two towel companies. They each offer cotton towels that are highly absorbent and fluffy even though they are made from different cottons. Since every household uses towels, these firms believe that there will always be a tomorrow for their product. Both Tom and Cathy have agreed to charge high prices in order to make a more than normal profit. Neither firm will charge a lower price as there is a credible threat of punishment from the other.

Question 17

A strategy is an idea that encompasses all the different paths a firm may take without a specific decision being made.

Question 18

Nash equilibrium is a game outcome in which each player obtains the best possible result given the strategy of the player's rivals).

Question 19

A one-shot game is where each player acts simultaneously and without knowledge of each other's actions, and has only one strategy to use before the game ends.

Question 20

Given the following table, Nancy's Nook has a dominant strategy.

Question 21

Search costs are only those direct expenditures incurred by individuals and/or firms associated with analyzing and making a decision to engage in a transaction.

Question 22

Asymmetric information is when both parties to a transaction have equal information and that information is free.

Question 23

A collection company hires an independent software company to design software that will increase the efficiency of the workers. If the amount of money collected increases after the software is implemented, then the software company will be paid 4% of that increase. This is an example of incentive contracting.

Question 24

Adverse selection is a self-sorting process that occurs when the information characteristics of a transaction are such that undesirable products, services or customers are attracted to it.

Question 25

Extensive form game is a game that is characterized by sequences of decisions and will only have one Nash equilibrium.

Question 26

Costs associated with making certain the terms of an agreement are complied with are called incentive costs.

Question 27

Asymmetric information is when one party to a transaction has better information than another.

Question 28

Rationally, one would only continue to search until one perceives that the marginal cost of additional searching exceeds its marginal benefit.

Question 29

Frank's Futons currently sells 55 futons a month at $450.00 for a total of $24,750 each month. Frank wants to increase the sales volume and has decided to offer incentives. An employee will have the following bonus schedule and has also placed a monetary value on their marginal effort. This employee will sell 95 futons for a bonus of $250.00 dollars.

Question 30

Search costs are the economic costs incurred by individuals and/or firms associated with analyzing and making a decision to engage in a transaction.

Question 31

Moral hazard is an incentive for a party to a transaction to engage in risky or undesirable behavior because the transaction protects that same party against loss.

Question 32

Costs associated with making certain the terms of an agreement are complied with are called monitoring costs.

Question 33

If you buy a priceless piece of artwork at an auction for mere dollars because you are the only one who recognizes the artist, you have used private information to your advantage.

Question 34

Backwards induction is the process of tracing backwards through a decision tree, starting from the best outcome for a given player, to determine that player's optimal strategy.

Question 35

A rational person would spend the same amount of time searching for a low price on a new car as they would for a low price on a new car stereo.

Question 36

Backwards induction is starting with the best payoffs to each player and tracing backwards along the branches to determine which decisions will be made.

Question 37

Incentive contracting is designing agreements with incentives that harmonize the goal of the contracting parties.

Question 38

Private information is relevant information known by the party on one side of the transaction that is not observable by the party on the other side.

Question 39

Frank's Futons currently sells 55 futons a month at $450.00 for a total of $24,750 each month. Frank wants to increase the sales volume and has decided to offer incentives. An employee will have the following bonus schedule and has also placed a monetary value on their marginal effort. This employee will sell 85 futons for a bonus of $150.00 dollars.

Question 40

A choice or sequence thereof made by a decision maker who, generally, sacrifices other alternatives in order to pursue it is an):

A) one shot game
B) strategy
C) opportunity cost
D) nash equilibrium
E) none of the above

Question 41

Anne runs a convenience store in a college town. Her imported and more expensive beer) not big seller. Anne wants to clear out her imported beer to make room for more Old English which she can't seem to keep stocked. Anne has decided the best way to do that is to offer incentives to employees who can convince the poor college students to buy the more expensive imports. An employee will have the following bonus schedule and has also placed a monetary value on their marginal effort.
How many six packs of imported beer will this employee sell?

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

Question 42

A strategy that is best for a given player no matter the choice exercised by that player's rivals) is:

A) dominated strategy
B) dominant strategy
C) nash strategy
D) iterative dominance strategy
E) first mover strategy

Question 43

Franie's Futons currently sells 55 futons a month at $450.00 for a total of $24,750 each month. Franie wants to increase the sales volume and has decided the best way to do that is to offer incentives. An employee will have the following bonus schedule and has also placed a monetary value on their marginal effort.
How many futons will this employee sell?

A) 65
B) 75
C) 85
D) 95
E) 105

Question 44

A term applied to a situation wherein the parties involved in a transaction have non-identical information that may affect the outcome of that transaction is:

A) search costs
B) adverse selection
C) asymmetric information
D) marginal costs
E) transaction information

Question 45

Given the following table, Tim's Treasures has a:

A) dominant strategy which is to discount
B) dominant strategy which is to maintain
C) dominated strategy which is to discount
D) dominated strategy which is to maintain
E) none of the above

Question 46

A first mover advantage:

A) is a beneficial outcome that accrues to the player who exercises the first strategic choice in a sequential game
B) is a beneficial outcome that accrues to the player waits for the other to move first and gains the advantage of seeing the other companies mistakes
C) is a beneficial outcome that accrues to the player who exercises the first strategic choice in a simultaneous game
D) only occurs when there is 1 Nash equilibrium
E) none of the above

Question 47

Given the following tables, Nash equilibrium occurs in the:

A) upper left cell
B) lower left cell
C) upper right cell
D) lower right cell
E) does not occur

Question 48

A strategy that is chosen by examining possible game outcomes and identifying dominated rival strategies is:

A) dominated strategy
B) dominant strategy
C) nash strategy
D) iterative dominance strategy
E) first mover strategy

Question 49

A repeated game with either a known or an uncertain end period is an):

A) game tree
B) finitely repeated game
C) one shot game
D) infinitely repeated game
E) none of the above

Question 50

A strategy that will be rejected by a given player no matter the choice exercised by that player's rivals is:

A) dominated strategy
B) dominant strategy
C) nash strategy
D) iterative dominance strategy
E) first mover strategy

Question 51

The following game tree is for two martial arts companies Kirk's Kickboxing and Becky's Blackbelt) that are trying to determine if they should open a new store in Alaska.

What is the optimal strategy for Kirk's Kickboxing?

A) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges low prices
B) Kirk's Kickboxing should charge high prices when Becky's Blackbelt charges high prices
C) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges low prices
D) Kirk's Kickboxing should charge low prices when Becky's Blackbelt charges high prices
E) Both c and d

Question 52

The following table is for two towel companies. They each offer cotton towels that are highly absorbent and fluffy even though they are made from different cottons. Since every household uses towels, these firms believe that there will always be a tomorrow for their product. Both Tom and Cathy have agreed to charge high prices in order to make a more than normal profit. Which of the following is true?

A) in the long run, it is in Cathy's Cotton's best interest to defect from their agreement and charge a lower price.
B) in the long run, it is in Tom's Terrycloth's best interest to defect from their agreement and charge a lower price.
C) there is no incentive for either firm to defect from the agreement
D) the agreement is only rational as long as the interest rate is sufficiently low to make the gains from defecting less than the present value of the of the profit obtained from colluding.
E) none of the above

Question 53

The following game tree is for two video rental companies Michael's Movies and Frank's Flicks) that are trying to determine if they should open stores in a college town.

What is the optimal strategy for Michael's Movies?

A) Michael's Movies should charge high prices when Frank's Flicks charges high prices.
B) Michael's Movies should charge high prices when Frank's Flicks charges low prices.
C) Michael's Movies should charge low prices when Frank's Flicks charges high prices.
D) Michael's Movies should charge low prices when Frank's Flicks charges low prices.
E) a and d

Question 54

A one shot game occurs when:

A) each player acts simultaneously and without knowledge of each other's actions, and has only one strategy to use before the game ends.
B) each player acts simultaneously and with knowledge of each other's actions, and has only one strategy to use before the game ends.
C) each player acts simultaneously and without knowledge of each other's actions, and has many strategies to use before the game ends.
D) each player has complete knowledge of what their rivals will do and has only one opportunity to pursue their chosen strategy prior to the game's end.
E) each player has complete knowledge of what their rivals will do and has several opportunities to pursue their chosen strategy prior to the game's end.

Question 55

The following table is for two martial arts companies that are trying to determine if they should open a new store in Alaska. Given the information in the table:

A) Kirk's Kickboxing will enter the market first and Becky's Blackbelt will follow
B) Kirk's Kickboxing will enter the market first and Becky's Blackbelt will not follow
C) Becky's Blackbelt will enter the market first and Kirk's Kickboxing will follow
D) Becky's Blackbelt will enter the market first and Kirk's Kickboxing will not follow
E) None of the above

Question 56

Given the following table, Nancy's Nook has a:

A) dominant strategy which is to discount
B) dominant strategy which is to maintain
C) dominated strategy which is to discount
D) dominated strategy which is to maintain
E) both a and d

Question 57

The economic cost incurred by individuals and/or firms associated with analyzing and make a decision to engage in a transaction are known as:

A) opportunity costs
B) game costs
C) search costs
D) marginal cost
E) reasonable cost

Question 58

Given the following table, Nancy's Nook has a:

A) dominant strategy which is to discount
B) dominant strategy which is to maintain
C) dominated strategy which is to discount
D) dominated strategy which is to maintain
E) both b and c