Deck 8: Game Theory and Oligopoly

Question 1

Refer to the payoff matrix above. Which of the following is the Nash Equilibrium?

A)Set High Price/Set High Price
B)Set High Price/Set Low Price
C)Set Low Price/Set High Price
D)Set Low Price/Set Low Price

Answer 1

D

Question 2

If Firm A and Firm B are playing a finitely repeated game and both know when the final period is, cooperation _ possible due to the .

A)is; trigger strategy
B)is not; end- period problem
C)is not; trigger strategy
D)is; end- period problem

Answer 2

B

Question 3

Refer to the payoff matrix above. If Best Lights and Bright Lights both know that they will play the game a finite number of times, but neither firm knows when the last period will be, there an opportunity to earn higher profit because the managers worry about punishment for cheating.

A)is; will
B)is not; will not
C)is; will not
D)is not; will

Answer 3

A

Question 4

Refer to the payoff matrix above. Which of the following is true for Best Lights?

A)Their pure strategy is to set a Low Price.
B)They do not have a pure strategy.
C)Their pure strategy is to set a High Price.
D)They do not have a dominant strategy.

Question 5

All of the following are elements of a game except which one?

A)payoffs
B)strategies
C)a game board
D)rules

Question 6

Cooperation is _ _ likely in a repeated game because it _ possible for players to punish each other for cheating.

A)less; is not
B)less; is
C)more likely; is not
D)more; is

Question 7

Refer to the payoff matrix above. If Best Lights and Bright Lights both set a High Price, the profit for Best Lights are _ _ and the profit for Bright Lights are _ than if both firms set a Low Price.

A)lower; higher
B)higher; lower
C)higher; higher
D)lower; lower

Question 8

Refer to the payoff matrix above. Which of the following is the pure- strategy Nash Equilibrium?

A)Set High Price/Set High Price
B)Set High Price/Set Low Price
C)Set Low Price/Set High Price
D)Set Low Price/Set Low Price

Question 9

Refer to the payoff matrix above. Which of the following is true for Bright Lights?

A)They do not have a dominant strategy.
B)Their dominant strategy is to set a Low Price.
C)Their dominant strategy is to set a High Price.
D)They do not have a pure strategy.

Question 10

Refer to the payoff matrix above. Which of the following is true for Best Lights?

A)They do not have a pure strategy.
B)Their dominant strategy is to set a Low Price.
C)Their dominant strategy is to set a High Price.
D)They do not have a dominant strategy.

Question 11

If Best Lights and Bright Lights are competing in a duopoly and it is always best for Best Lights to charge a price of $4 regardless of the price Bright Lights charges, then charging $4 is for Best Lights.

A)a dominant and pure strategy
B)neither a dominant nor pure strategy
C)a dominant, but not pure strategy
D)a pure, but not dominant strategy

Question 12

If Best Paints and Paint with Us are competing in a duopoly and it is always best for Best Paints to charge a price of $20 per gallon of paint regardless of the price Paint with Us charges, then charging $20 is for Best Paints.

A)a dominant and pure strategy
B)a dominant, but not pure strategy
C)neither a dominant nor pure strategy
D)a pure, but not dominant strategy

Question 13

Cooperation is possible in a game if both firms know the final period of the game.

A)one- shot; do
B)finitely repeated; do not
C)one- shot; do not
D)finitely repeated; do

Question 14

Refer to the payoff matrix above. Which of the following is the dominant strategy equilibrium?

A)Set High Price/Set High Price
B)Set Low Price/Set Low Price
C)Set High Price/Set Low Price
D)Set Low Price/Set High Price

Question 15

If Firm A and Firm B are playing a finitely repeated game in which they both believe there is a 90 percent chance that the game will continue each period, all of the following are true except which one?

A)Both managers will worry about punishment from cheating.
B)Tacit collusion is not possible.
C)Both firms can earn higher profit by cooperating.
D)There is not an end- game problem.

Question 16

Refer to the payoff matrix above. Which of the following is true for Bright Lights?

A)Their pure strategy is to set a Low Price.
B)Their pure strategy is to set a High Price.
C)They do not have a dominant strategy.
D)They do not have a pure strategy.

Question 17

Mario's Pizza and Bella's Pizza are in tacit collusion to cooperate and each charge a high price for their pizzas. If Mario's Pizza initially cooperates with Bella's Pizza, but then switches and charges a low price and Bella's Pizza responds by forever charging a low price, this is an example of .

A)a tit- for- tat strategy
B)a trigger strategy
C)an end- period problem
D)a one- shot game

Question 18

Refer to the payoff matrix above. If Best Lights and Bright Lights both know that the above game will be played exactly four times, which of the following will be the outcome of the game in each of the four periods?

A)Set High Price/Set High Price
B)Set Low Price/Set Low Price
C)Set High Price/Set Low Price
D)Set Low Price/Set High Price

Question 19

Happy Campers and Camping R Us are in tacit collusion to cooperate and each charge a high price for their campers. If Happy Campers initially cooperates with Camping R Us, but then switches and charges a low price and Camping R Us responds by forever charging a low price, this is an example of .

A)a trigger strategy
B)a dominant strategy
C)a tit- for- tat strategy
D)a one- shot game

Question 20

Refer to the payoff matrix above. The Set High Price/Set High Price outcome is the _.

A)pure- strategy Nash Equilibrium
B)dominant strategy equilibrium
C)cooperative equilibrium
D)Nash Equilibrium

Question 21

Refer to the payoff matrix above. Which of the following is the iterated elimination of dominated strategies outcome of the game?

A)Middle/High
B)High/High
C)Low/High
D)Low/Middle

Question 22

If Best Lights and Bright Lights are competing in a duopoly, Best Lights' profit depends solely on the decisions of its managers.

Question 23

Refer to the payoff matrix above. Which of the following is true for Happy Campers?

A)The Low strategy dominates the Middle strategy
B)The High strategy dominates the Low strategy.
C)The Low strategy dominates the High strategy.
D)The Middle strategy dominates the Low strategy.

Question 24

Refer to the payoff matrix above. Which of the following is true for Camping R Us?

A)The Low strategy dominates the High strategy.
B)The Low strategy dominates the Middle strategy.
C)The Middle strategy dominates the Low strategy.
D)The High strategy dominates the Low strategy.

Question 25

Cheap talk helps firms cooperate and earn higher profit.

Question 26

Refer to the payoff matrix above. Which of the following is true for Campers R Us?

A)They have three dominated strategies.
B)They have one dominated strategy.
C)They have two dominated strategies.
D)They have zero dominated strategies.

Question 27

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. If Camp R Us announces that it will offer special financing, Happy Campers believe Camp R Us as their incentives _ _ align.

A)should; do not
B)should not; do
C)should; do
D)should not; do not

Question 28

Refer to the payoff matrix above. Which of the following is true for Happy Campers?

A)They have two dominated strategies.
B)They have one dominated strategy.
C)They have zero dominated strategies.
D)They have three dominated strategies.

Question 29

When each firm uses the strategy that maximizes its profit, it is possible for the equilibrium result to yield the worst possible joint equilibrium for all firms.

Question 30

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A)There are no Nash equilibria in this game.
B)Camp with Us Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.
C)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.
D)Camp with Us Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.

Question 31

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. Which is the equilibrium of the game using the Pareto criterion?

A)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing
B)Camp with Us Offer Financing and Happy Campers Do Not Offer Financing
C)Camp with Us Offer Financing and Happy Campers Offer Financing
D)Camp with Us Do Not Offer Financing and Happy Campers Offer Financing

Question 32

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Happy Campers' expected profits?

A)$7.25
B)$11.25
C)$10.50
D)$6.75

Question 33

Every dominant strategy equilibrium is a Nash equilibrium, but not every Nash equilibrium is a dominant strategy equilibrium.

Question 34

If two players are in a finitely repeated game and both players know the final period, cooperation is not possible due to the end- period problem.

Question 35

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. If Camp with Us is known for consistently offering special financing and this is the focal point, what is the equilibrium of the game using the focal point criterion?

A)Camp with Us Offer Financing and Happy Campers Offer Financing
B)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing
C)Camp with Us Offer Financing and Happy Campers Do Not Offer Financing
D)Camp with Us Do Not Offer Financing and Happy Campers Offer Financing

Question 36

In reality, it is _ that managers flip a coin to make decisions; but actual randomness desirable in certain situations.

A)common; can
B)rare; cannot
C)common; cannot
D)rare; can

Question 37

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A)Camp with Us Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.
B)Camp with Us Do Not Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.
C)There are no Nash equilibria in this game.
D)Camp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.

Question 38

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Camp with Us' expected profits?

A)$7.25
B)$8.50
C)$5.75
D)$4.25

Question 39

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.
Refer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A)There are two Nash equilibria in this game.
B)There is one Nash equilibrium in this game.
C)There are no Nash equilibria in this game.
D)There are three Nash equilibria in this game.

Question 40

In a game with multiple Nash equilibria, all of the following can be used to determine the equilibrium of the game except which one?

A)refinements
B)a coin flip
C)the Pareto criterion
D)the Focal point

Question 41

All of the following are true for sequential games except which one?

A)Sequential games are illustrated as game trees.
B)Backward induction can be used to determine the Nash equilibrium of sequential games.
C)A classic example of a sequential game is an entry game.
D)Forward induction can be used to determine the Nash equilibrium of sequential games.

Question 42

All of the following are examples of a sequential game except which one?

A)Rock- Paper- Scissors
B)Chess
C)Tic- Tac- Toe
D)Checkers

Question 43

Best Lights wants to prevent Bright Lights from entering the light bulb market. If Best Lights advertises that it will always undercut any competitor's price, the effect of advertising Best Lights' profits due to its cost and _ Best Lights' profits due to a(n)in its demand.

A)decreases; decreases; decrease
B)increases; increases; increase
C)decreases; decreases; increase
D)decreases; increases; increase

Question 44

Happy Feet wants to prevent Best Nails from entering the nail salon market. If Happy Feet expands its capacity, the expansion can lead to all of the following except which one?

A)increase Happy Feet's profit- maximizing quantity
B)increase Happy Feet's marginal cost
C)decrease Happy Feet's profit- maximizing price
D)decrease Best Nails' profit from entering the market

Question 45

Happy Campers wants to prevent Campers R Us from entering the camping market. If Happy Campers expands its capacity, the expansion can lead to all of the following except which one?

A)lower Happy Campers' profit- maximizing price
B)increase Happy Campers' marginal cost
C)lower Campers R Us' profit from entering the market
D)increase Happy Campers' profit- maximizing quantity

Question 46

The likelihood of a rival's announcement of a planned strategy being truthful depends on the degree to which it's interests align with its rivals.

Question 47

In an entry game, managers to look into the and work _ .

A)future; forward
B)future; backward
C)past; forward
D)past; backward

Question 48

Mixed strategies are inherently random.

Question 49

A mixed- strategy Nash equilibrium is the outcome in which a player's strategy is the best strategy for that player, taking as given the other player's strategy.

A)mixed; mixed
B)mixed; pure
C)pure; pure
D)pure; mixed

Question 50

Cruise R Us and Cruise the World compete in the cruise line industry. Each firm needs to determine if they are going to offer special cruise packages with special rates or not offer the specials. The above payoff matrix shows the firms' net economic profit for each set of strategies.
Refer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A)There are three Nash equilibria in this game.
B)There are two Nash equilibria in this game.
C)There are no Nash equilibria in this game.
D)There is one Nash equilibrium in this game.

Question 51

It is not possible for a game to have no pure- strategy Nash equilibria.

Question 52

Getaway Spas wants to prevent Relax with Us from entering the luxury spa market. If Getaway Spas advertises that it will always undercut any competitor's price, the effect of advertising Getaway Spas' profits due to its cost and _ _ Getaway Spas' profits due to a(n)
In its demand.

A)decreases; decreases; increase
B)decreases; increases; increase
C)decreases; decreases; decrease
D)increases; increases; increase

Question 53

Cheap talk is an example of a refinement.

Question 54

Cruise R Us and Cruise the World compete in the cruise line industry. Each firm needs to determine if they are going to offer special cruise packages with special rates or not offer the specials. The above payoff matrix shows the firms' net economic profit for each set of strategies.
Refer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A)Cruise R Us Specials and Cruise the World Specials is a Nash equilibrium.
B)Cruise R Us No Specials and Cruise the World No Specials is a Nash equilibrium.
C)Cruise R Us Specials and Cruise the World No Specials is a Nash equilibrium.
D)There are no Nash equilibria in this game.

Question 55

Frozen Paws wants to prevent Happy Paws from entering the pet frozen treat market. If Frozen Paws expands its capacity, the expansion can lead to all of the following except which one?

A)increase Frozen Paws' profit- maximizing quantity
B)decrease Frozen Paws' marginal cost
C)increase Frozen Paws' profit- maximizing price
D)decrease Happy Paws' profit from entering the market

Question 56

A manager's optimal decision regarding their firm's strategy requires that the manager also considers their rival's best response.

Question 57

Fast Ink wants to prevent Jet Ink from entering the ink market. If Fast Ink expands its capacity, the expansion can lead to all of the following except which one?

A)decrease Fast Ink's profit- maximizing price
B)decrease Fast Ink's marginal cost
C)increase Fast Ink's profit- maximizing quantity
D)decrease Fast Ink's profit- maximizing quantity

Question 58

If Happy Feet chooses to Ad and Best Nails then chooses to No Ad, Happy Feet earns million in net profit and Best Nails earns million.

A)$5; $1
B)$2; $3
C)$1; $4
D)$4; $1

Question 59

Best Lights wants to prevent Bright Lights from entering the light bulb market. If Best Lights expands its capacity, the expansion can lead to all of the following except which one?

A)lower Best Lights' marginal cost
B)decrease Bright Lights' profit from entering the market
C)lower Best Lights' profit- maximizing quantity
D)lower Best Lights' profit- maximizing price

Question 60

Mario's Pizza wants to prevent Angelo's Pizza from entering the pizza delivery market. If Mario's Pizza advertises that it will always undercut any competitor's price, the effect of advertising Mario's Pizza's profits due to its cost and _ Mario's Pizza's profits due to a(n)
In its demand.

A)decreases; decreases; increase
B)increases; increases; increase
C)decreases; increases; increase
D)decreases; decreases; decrease

Question 61

If Happy Feet chooses to No Ad, Best Nails should _ and earn million in net profit.

A)No Ad; $4
B)Ad; $2
C)Ad; $3
D)No Ad; $3

Question 62

The Nash equilibrium of this game is for Happy Feet to and Best Nails to .

A)Ad; No Ad
B)Ad; Ad
C)No Ad; No Ad
D)No Ad; Ad

Question 63

If Jet Cruises chooses to Ad and Easy Sail then chooses to No Ad, Jet Cruises earns million in net profit and Easy Sail earns million.

A)$2; $4
B)$10; $2
C)$5; $2
D)$4; $3

Question 64

If Jet Cruises chooses to No Ad, Easy Sail should and earn million in net profit.

A)Ad; $10
B)No Ad; $10
C)Ad; $4
D)No Ad; $2

Question 65

If Happy Feet chooses to No Ad and Best Nails then chooses to No Ad, Happy Feet earns million in net profit and Best Nails earns million.

A)$1; $4
B)$2; $3
C)$5; $1
D)$4; $1

Question 66

If Happy Feet chooses to Ad, Best Nails should and earn million in net profit.

A)Ad; $4
B)No Ad; $5
C)Ad; $1
D)No Ad; $1

Question 67

If Jet Cruises chooses to No Ad and Easy Sail then chooses to Ad, Jet Cruises earns million in net profit and Easy Sail earns million.

A)$4; $3
B)$2; $4
C)$10; $2
D)$5; $2

Question 68

The manager of a large luxury hotel chain is currently negotiating a four year contract with a linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. The manager of the hotel chain should be most concerned about the quality of linens in which year?

A)the second year
B)the fourth year
C)the third year
D)the first year

Question 69

Chess is an example of a sequential game.

Question 70

If Jet Cruises chooses to Ad, Easy Sail should and earn million in net profit.

A)Ad; $3
B)Ad; $5
C)No Ad; $4
D)No Ad; $2

Question 71

If Happy Feet chooses to No Ad and Best Nails then chooses to Ad, Happy Feet earns million in net profit and Best Nails earns million.

A)$4; $1
B)$2; $3
C)$5; $1
D)$1; $4

Question 72

The manager of a large luxury hotel chain is currently negotiating a four year contract with a linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end- game problem?

A)Offer a bonus to the linens company if they provide quality linens all four years.
B)Pay the linens company in full after the second year.
C)Pay the linens company in full after the third year.
D)Pay the linens company in full after the first year.

Question 73

If Happy Feet advertises that it will undercut any competitor's price to keep another firm from entering the market, advertising will both increase and decrease Happy Feet's profit.

Question 74

If Jet Cruises chooses to Ad and Easy Sail then chooses to Ad, Jet Cruises earns million in net profit and Easy Sail earns million.

A)$4; $3
B)$10; $2
C)$2; $4
D)$5; $2

Question 75

The Nash equilibrium of this game is for Jet Cruises to and Easy Sail to .

A)No Ad; No Ad
B)No Ad; Ad
C)Ad; No Ad
D)Ad; Ad

Question 76

If Happy Feet chooses to Ad and Best Nails then chooses to Ad, Happy Feet earns _ million in net profit and Best Nails earns million.

A)$2; $3
B)$5; $1
C)$1; $4
D)$4; $1

Question 77

In an entry game, it is not necessary for managers to consider the best response of their competitor(s).

Question 78

All else equal, the greater the cost of a commitment to prevent a rival firm from entering the market, the less likely the commitment will be undertaken.

Question 79

A terminal node in a game tree is the starting point of the game.

Question 80

If Jet Cruises chooses to No Ad and Easy Sail then chooses to No Ad, Jet Cruises earns million in net profit and Easy Sail earns _ million.

A)$4; $3
B)$2; $4
C)$5; $2
D)$10; $2