Question 1

In game theory, a strategy&#10;A)is useless, because firms are subject to bounded rationality.&#10;B)is useful in static games, but not in dynamic games.&#10;C)defines the specific actions a firm will make.&#10;D)determines the payoff matrix of the game.

Accepted Answer

A strategy is a specific plan of action that a firm will take in order to achieve its objectives. It is an important concept in game theory, as it helps to determine the outcome of a game. Strategies can vary depending on the type of game being played, and can be influenced by factors such as the number of players, the available information, and the level of uncertainty in the game. Therefore, C is the best choice as it provides the most accurate definition of a strategy in game theory.

Question 2

Rock-paper-scissors (Roshambo)is an example of a ________ game.&#10;A)simultaneous&#10;B)sequential&#10;C)dominant strategy&#10;D)weakly dominant

Accepted Answer

Rock-paper-scissors is a simultaneous game, meaning both players make their choices at the same time without knowing the other player's choice. As a result, there is no dominant strategy in this game, and the best choice is to play randomly.

Question 3

A payoff matrix&#10;A)shows the payoffs (i.e. bribes)required to government officials for firms undertaking specific actions.&#10;B)details the actions each firm takes.&#10;C)shows the payoffs to each firm for each possible outcome.&#10;D)is optional in game theory.

Accepted Answer

A payoff matrix shows the payoffs to each firm for each possible outcome. Therefore, choice C is correct. Choice A is incorrect as it describes a different type of matrix. Choice B may be included in the matrix, but it alone does not provide the necessary information. Choice D is incorrect as the payoff matrix is a fundamental concept in game theory.

Question 4

A Nash equilibrium occurs when&#10;A)players choose their best strategy given the strategies chosen by others.&#10;B)the efficient allocation of resources is achieved by setting marginal revenue equal to marginal cost.&#10;C)a monopolist is forced to produce the efficient level of output.&#10;D)oligopolists cooperate with each other.

Accepted Answer

A Nash equilibrium occurs when each player chooses their best strategy given the strategies chosen by others. In other words, no player has an incentive to deviate from their current strategy given what others are doing. This is a stable outcome in game theory, and it is named after economist John Nash. B is incorrect because it describes the condition for allocative efficiency in a competitive market, not a Nash equilibrium. C is incorrect because a monopolist would not necessarily produce the efficient level of output without intervention. D is incorrect because cooperation among oligopolists would result in a different outcome, namely a collusive equilibrium. A Nash equilibrium occurs when each player in a game chooses their best strategy given the strategies chosen by others. In other words, no player can unilaterally improve their own payoff by changing their strategy, given the actions of the other players. This results in a stable outcome where no player has an incentive to deviate from their chosen strategy.

Question 5

In a static game, firms&#10;A)compete multiple times until there is a winner.&#10;B)compete only once.&#10;C)must have complete information.&#10;D)act sequentially.

Accepted Answer

In a static game, firms compete only once. This means that their strategies and decisions are made simultaneously, without knowledge of the other firm's actions. Therefore, it is a one-time decision that has no opportunity for repetition or adjustment based on the competitor's actions.

Question 6

Common knowledge in game theory&#10;A)is information known to be known by all players.&#10;B)is required for dynamic games.&#10;C)is complete.&#10;D)Both A and B.

Accepted Answer

Common knowledge in game theory refers to information that is known by all players, and importantly, all players know that all others also know it, and so on ad infinitum. This concept does not necessarily require the game to be dynamic nor does it imply completeness of information.

Question 7

One interesting feature of a prisoner's dilemma game is that&#10;A)non-cooperative behavior leads to lower payoffs than cooperative behavior.&#10;B)there is never a dominated strategy.&#10;C)individuals behave irrationally when they behave non-cooperatively.&#10;D)cooperative behavior leads to lower payoffs than non-cooperative behavior.

Accepted Answer

In a prisoner's dilemma game, both players have a dominant strategy of defecting (non-cooperative behavior), which leads to a worse outcome for both players compared to if they had both cooperated. This is why non-cooperative behavior leads to lower payoffs than cooperative behavior.

Question 8

Firms in an oligopolistic market ________ because they are ________.&#10;A)attempt to predict the behavior of other firms; strategically interdependent&#10;B)form cartels; unable to predict the behavior of other firms&#10;C)ignore other firms' actions; strategically independent&#10;D)advertise; unable to differentiate their products

Accepted Answer

In an oligopolistic market, firms are strategically interdependent, meaning that they take into account the actions of other firms when making their own business decisions. As a result, they attempt to predict the behavior of other firms in order to stay competitive and maintain their market share. This is why choice A is the best answer. Choices B, C, and D are not accurate representations of how firms operate in an oligopolistic market.

Question 9

Dominant strategies&#10;A)are always present in simultaneous games.&#10;B)result in a prisoners' dilemma.&#10;C)result in one firm winning and the other losing.&#10;D)None of the above.

Accepted Answer

Dominant strategies can be present in simultaneous games, but not always. Additionally, the result of dominant strategies does not necessarily have to be a prisoners' dilemma or one firm winning and the other losing. Therefore, none of the options presented are accurate.

Question 10

A game includes&#10;A)a strategy.&#10;B)payoffs.&#10;C)rules.&#10;D)All of the above.

Accepted Answer

All of the above are essential components of a game. A strategy refers to a player's plan of action, payoffs are the outcomes or rewards associated with different choices or actions, and rules establish the framework and requirements for how the game is played. Without these components, a game cannot exist.

Question 11

The term prisoners' dilemma refers to a game in which&#10;A)there are no Nash equilibria.&#10;B)there are no dominant strategies.&#10;C)the payoff from both players playing their dominant strategies is the same for each player.&#10;D)the payoff from both players playing their dominant strategies is not the highest payoff possible.

Accepted Answer

The answer of The term prisoners' dilemma refers to a...

Question 12

Which of the following is a simultaneous decision game?&#10;A)Tic-tac-toe&#10;B)Chess&#10;C)Poker&#10;D)Rock-paper-scissors (Roshambo)

Accepted Answer

The answer of Which of the following is a simultaneous...

Question 13

When both firms have dominant strategies&#10;A)the outcome is called a dominant strategy solution.&#10;B)joint profits are maximized.&#10;C)there are multiple Nash equilibria.&#10;D)there is a prisoners' dilemma.

Accepted Answer

The answer of When both firms have dominant strategies&#10;A)the outcome...

Question 14

A dominant strategy&#10;A)maximizes the joint profit of the players in the game.&#10;B)is the player's best response to all possible strategies of the other player.&#10;C)cannot exist when there is a Nash equilibrium.&#10;D)only exists when the game is limited to two players.

Accepted Answer

The answer of A dominant strategy&#10;A)maximizes the joint profit of...

Question 15

A dominated strategy&#10;A)exists when one firm is weaker than another.&#10;B)only occurs in a mixed strategy scenario.&#10;C)is one that is never used by a rational actor.&#10;D)is a characteristic of games with multiple Nash equilibria.

Accepted Answer

The answer of A dominated strategy&#10;A)exists when one firm is...

Question 16

A player's best response is&#10;A)the strategy that maximizes his payoff given what he thinks the other player will do.&#10;B)a dominant strategy.&#10;C)impossible to find when there isn't a Nash equilibrium.&#10;D)a way to avoid the prisoners' dilemma.

Accepted Answer

The answer of A player's best response is&#10;A)the strategy that...

Question 17

Mutually Assured Destruction was a standing policy during the Cold War, in which the United States and the USSR maintained and expanded nuclear arsenals beyond practical levels. What could explain such a phenomenon?

A)Insane public officials who were bent on world domination.
B)A prisoner's dilemma.
C)A leader-follower type game.
D)Tacit collusion.

Accepted Answer

The answer of Mutually Assured Destruction was a standing policy...

Question 18

A strategy is dominant if&#10;A)it yields a greater payoff than any other player receives.&#10;B)it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players.&#10;C)the player cannot gain by changing strategy, assuming that no other player changes strategy.&#10;D)it is part of a Nash equilibrium.

Accepted Answer

The answer of A strategy is dominant if&#10;A)it yields a...

Question 19

A game in economics is defined as&#10;A)something that is shown on ESPN.&#10;B)competition in which strategic decision making is integral.&#10;C)competition in general.&#10;D)an actual strategy chosen by one or more economic agents.

Accepted Answer

The answer of A game in economics is defined as&#10;A)something...

Question 20

Common knowledge in game theory&#10;A)is information known by all players.&#10;B)is required for static games.&#10;C)does not impact the outcome of the game, since everyone has the information.&#10;D)Both A and B.

Accepted Answer

The answer of Common knowledge in game theory&#10;A)is information known...

Question 21

A single-period duopoly firm can choose output level A or B. The firm decides it will produce level A regardless of what the other firm produces. This decision may occur because&#10;A)producing the output level A is a dominant strategy.&#10;B)this firm has simply decided to always produce at level A.&#10;C)Both A and B are possible.&#10;D)None of the above.

Accepted Answer

The answer of A single-period duopoly firm can choose output...

Question 22

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between selling basic computers or advanced computers. Which of the following is a Nash equilibrium?&#10;A)Both firms make advanced computers.&#10;B)Both firms make basic computers.&#10;C)Firm A makes basic computers and firm B makes advanced computers.&#10;D)There are no Nash equilibria.

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 23

Which of the following statements is TRUE about a non-cooperative game?&#10;A)When two players each have a dominant strategy, joint profits may not be maximized.&#10;B)When two players each have a dominant strategy, joint profits are maximized.&#10;C)When players use their best responses, joint profits are maximized.&#10;D)None of the above.

Accepted Answer

The answer of Which of the following statements is TRUE...

Question 24

In a two-player simultaneous game, if player A has a dominant strategy and player B does not, player B will&#10;A)employ a mixed strategy.&#10;B)choose his best strategy assuming that player A plays her dominant strategy.&#10;C)not achieve a Nash equilibrium.&#10;D)assume that player A does not choose her dominant strategy.

Accepted Answer

The answer of In a two-player simultaneous game, if player...

Question 25

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between selling basic computers or advanced computers. Firm B's dominant strategy&#10;A)is to make basic computers.&#10;B)is to make advanced computers.&#10;C)is to adopt firm A's strategy.&#10;D)does not exist in this game.

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 26

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. Both firms setting a high price is NOT a Nash equilibrium because&#10;A)setting a high price is the dominant strategy for each firm.&#10;B)neither firm can improve its payoff by setting a low price given that the other firm is setting a high price.&#10;C)there is no dominant strategy for either firm.&#10;D)both firms can improve their payoff by setting a low price given that the other firm is setting a high price.

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 27

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between selling basic computers or advanced computers. How many Nash equilibria are there?&#10;A)0&#10;B)1&#10;C)2&#10;D)4

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 28

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, which one of the following statements is TRUE?&#10;A)Since firm B has no dominant strategy, its decision is unpredictable.&#10;B)Since firm B's decision is unpredictable, firm A's decision is unpredictable.&#10;C)Neither firm entering is a Nash equilibrium.&#10;D)Firm B will not enter because it knows firm A will.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 29

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. The Nash equilibrium in this game&#10;A)does not exist.&#10;B)occurs when both firms set a low price.&#10;C)occurs when both firms set a high price.&#10;D)occurs when firm A sets a high price and firm B sets a low price.

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 30

If each player in a game uses a strategy that results in a Nash equilibrium outcome, the players are most likely to say&#10;A)&#34;I don't like my choice, because I think I could have done better.&#34;&#10;B)&#34;Given the strategies chosen by the other players in the game, I probably could have done better if I had more time.&#34;&#10;C)&#34;Given the strategies chosen by the other players in the game, I made the best possible choice.&#34;&#10;D)&#34;There was no real strategy on my part, I basically made an educated guess.&#34;

Accepted Answer

The answer of If each player in a game uses...

Question 31

Strategic advertising in the cola market&#10;A)significantly expands the size of the market.&#10;B)brings in few new customers and primarily shifts market share among rivals.&#10;C)shifts market demand to the right, increasing quantity sold and decreasing prices.&#10;D)has no impact on the market.

Accepted Answer

The answer of Strategic advertising in the cola market&#10;A)significantly expands...

Question 32

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, which one of the following statements is TRUE?&#10;A)Firm A does not have a dominant strategy.&#10;B)Firm B does not have a dominant strategy.&#10;C)Neither firm entering is a Nash equilibrium.&#10;D)The outcome of the game is unpredictable.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 33

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, what will happen if the government offers a $30 subsidy to airlines that serve this route?&#10;A)Both firms will enter profitably.&#10;B)Firm A will decide not to enter since firm B will.&#10;C)Firm B is still better off not entering.&#10;D)Neither firm will have a dominant strategy.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 34

&#10;The above figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. For firm B&#10;A)setting a high price is the dominant strategy.&#10;B)setting a low price is the dominant strategy.&#10;C)there is no dominant strategy.&#10;D)doing the opposite of firm A is always the best strategy.

Accepted Answer

The answer of  &#10;The above figure shows a payoff...

Question 35

Which of the following statements is TRUE?&#10;A)If a game has one or more Nash equilibria, then it's not really a game since the solution is known.&#10;B)A game can either have a Nash equilibrium or a dominant strategy solution.&#10;C)If a game has a Nash equilibrium, the game must have a dominant strategy solution.&#10;D)If a game has a dominant strategy solution, the solution must also be a Nash equilibrium.

Accepted Answer

The answer of Which of the following statements is TRUE?&#10;A)If...

Question 36

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, and the government imposes a $20 per firm tax on firms that service this route, which of the following maximizes the firms' joint profits?&#10;A)Neither firm services the route.&#10;B)Firm A offers firm B $20 to not enter.&#10;C)Both firms will service this route.&#10;D)Firm B offers firm A $30 to not enter.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 37

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, what happens if the government imposes a $20 per firm tax on firms that service this route?&#10;A)Neither firm has a dominant strategy.&#10;B)Not entering is a dominant strategy for both firms.&#10;C)Neither firm entering is a Nash equilibrium.&#10;D)Only firm A will enter.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 38

If the payoff to the United States to pursuing nuclear weapons is 100 if the USSR does not pursue nuclear weapons and 50 if the USSR does, and the payoff to the USSR to pursuing nuclear weapons is 80 if the USA doesn't pursue nuclear weapons and 30 if the USA does, what is the non-cooperative equilibrium?

A)The USA pursues nuclear weapons; the USSR does not.
B)The USA pursues nuclear weapons; the USSR pursues nuclear weapons.
C)The USA does not pursue nuclear weapons; the USSR does not pursue nuclear weapons.
D)The USA does not pursue nuclear weapons; the USSR does pursue nuclear weapons.

Accepted Answer

The answer of If the payoff to the United States...

Question 39

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, which one of the following statements is TRUE?&#10;A)Firm A has a dominant strategy.&#10;B)Firm B has a dominant strategy.&#10;C)Neither firm entering is a Nash equilibrium.&#10;D)The outcome of the game is unpredictable.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 40

&#10;The above figure shows the payoff to two airlines, A and B, of serving a particular route. If the two airlines must decide simultaneously, which one of the following statements is TRUE?&#10;A)Only firm A will enter the market.&#10;B)Only firm B will enter the market.&#10;C)Neither firm entering is a Nash equilibrium.&#10;D)The outcome of the game is unpredictable.

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 41

After analyzing his opponent, a tennis player decides to serve 10% of his serves to the left, 50% of his serves to the right, and 40% of his serves at the body of his opponent. This illustrates a&#10;A)deterministic strategy.&#10;B)dominant strategy.&#10;C)mixed strategy.&#10;D)non-game theoretic problem.

Accepted Answer

The answer of After analyzing his opponent, a tennis player...

Question 42

If a game has a pure strategy Nash equilibrium, then&#10;A)it might also have a mixed strategy equilibrium.&#10;B)it does not have a mixed strategy equilibrium.&#10;C)at least one player has a dominant strategy.&#10;D)no player has a dominant strategy.

Accepted Answer

The answer of If a game has a pure strategy...

Question 43

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

Accepted Answer

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

Question 44

When neither player has a dominant strategy,&#10;A)game theory will not provide information.&#10;B)no Nash equilibrium exists.&#10;C)at least one Nash equilibrium exists.&#10;D)the game cannot be analyzed.

Accepted Answer

The answer of When neither player has a dominant strategy,&#10;A)game...

Question 45

When firms select the solution that is better for all parties, the ________ is satisfied.&#10;A)Nash equilibrium condition&#10;B)Pareto Criterion&#10;C)coordination game requirement&#10;D)pure strategy requirement

Accepted Answer

The answer of When firms select the solution that is...

Question 46

A strategy in which a player uses probabilities to decide which strategy to use is called a&#10;A)pure strategy.&#10;B)mixed strategy.&#10;C)Pareto strategy.&#10;D)coin flip strategy.

Accepted Answer

The answer of A strategy in which a player uses...

Question 47

What is the primary difference between a mixed strategy and a pure strategy?&#10;A)Pure strategies are always dominated strategies.&#10;B)Mixed strategies call for randomizing over possible actions, pure strategies do not.&#10;C)Pure strategies are much more common than mixed strategies.&#10;D)Mixed strategies are not optimal whereas pure strategies are.

Accepted Answer

The answer of What is the primary difference between a...

Question 48

A mixed strategy may&#10;A)be part of a Nash equilibrium.&#10;B)be a set of probabilities of selecting each possible action.&#10;C)lead identical firms to choose different actions.&#10;D)All of the above.

Accepted Answer

The answer of A mixed strategy may&#10;A)be part of a...

Question 49

&#34;Cheap talk&#34; is considered cheap because&#10;A)communications via phone or email these days has a cost that is close to zero.&#10;B)a firm can say anything, but may actually do something different.&#10;C)the cost of talking is far outweighed by the gains to be made in coordinating efforts.&#10;D)firms avoid the costs of hiring lawyers.

Accepted Answer

The answer of &#34;Cheap talk&#34; is considered cheap because&#10;A)communications via...

Question 50

&#10;The above figure shows the payoffs to two airlines, A and B, of serving a particular route. Is there a Nash equilibrium? What is it? Explain.

Accepted Answer

The answer of  &#10;The above figure shows the payoffs...

Question 51

Not all games with two or more Nash equilibria can be solved with pre-play communication because&#10;A)cheap talk may be illegal under anti-trust laws.&#10;B)if there's an incentive for one or more players to lie, then cheap talk lacks credibility.&#10;C)Pareto Criterion might not be defined.&#10;D)Both A and B

Accepted Answer

The answer of Not all games with two or more...

Question 52

Which of the following can always be used to determine the outcome when there are multiple Nash equilibria?&#10;A)the Pareto Criterion&#10;B)cheap talk&#10;C)Both A and B&#10;D)None of the above.

Accepted Answer

The answer of Which of the following can always be...

Question 53

&#10;The above figure shows the payoff for two firms, A and B, that must each choose to sell either at a high or low price. Determine the dominant strategies for each firm (if any)and the Nash equilibria (if any).

Accepted Answer

The answer of  &#10;The above figure shows the payoff...

Question 54

If neither firm has a dominant strategy, a Nash equilibrium cannot exist.

Accepted Answer

The answer of If neither firm has a dominant strategy,...

Question 55

One reason that it might be difficult for a player to determine his best strategy is that&#10;A)he might have limited ability to calculate the possible outcomes.&#10;B)he is irrational.&#10;C)there is no pure strategy.&#10;D)there are multiple Nash equilibria.

Accepted Answer

The answer of One reason that it might be difficult...

Question 56

In the following game, how many Nash equilibria are there?  &#10;A)0&#10;B)1&#10;C)2&#10;D)unable to determine

Accepted Answer

The answer of In the following game, how many Nash...

Question 57

In game theory, we usually assume that all players&#10;A)act rationally.&#10;B)use the information available to them to decide on a best strategy.&#10;C)know about the payoffs of the other players.&#10;D)All of the above.

Accepted Answer

The answer of In game theory, we usually assume that...

Question 58

Cheap talk&#10;A)is never credible.&#10;B)is illegal.&#10;C)generally affects the game's payoffs.&#10;D)can be credible when both firms have an incentive to be truthful.

Accepted Answer

The answer of Cheap talk&#10;A)is never credible.&#10;B)is illegal.&#10;C)generally affects the...

Question 59

A coordination game&#10;A)is a game with multiple Nash equilibria where players can credibly coordinate to select one of the equilibria.&#10;B)is a game where players coordinate to maximize joint profits.&#10;C)cannot be solved with cheap talk.&#10;D)always has one Nash equilibrium and no dominated strategies.

Accepted Answer

The answer of A coordination game&#10;A)is a game with multiple...

Question 60

Communication between players prior to the start of a game that does NOT affect the payoffs is called&#10;A)cheap talk.&#10;B)ineffective bargaining.&#10;C)a binding verbal contract.&#10;D)pareto efficient.

Accepted Answer

The answer of Communication between players prior to the start...

Question 61

In a bargaining game, players&#10;A)are forced to negotiate, as in a mediation.&#10;B)voluntarily negotiate.&#10;C)are engaging in illegal activity.&#10;D)Both B and C

Accepted Answer

The answer of In a bargaining game, players&#10;A)are forced to...

Question 62

In an English auction&#10;A)the price decreases until someone bids.&#10;B)the price increases until nobody else will raise the bid.&#10;C)bidders put their bids in a sealed envelope.&#10;D)the winning bidder pays the amount bid by the person with the second highest bid.

Accepted Answer

The answer of In an English auction&#10;A)the price decreases until...

Question 63

A Nash bargaining solution&#10;A)is not the same as a Nash equilibrium.&#10;B)is derived from a Nash equilibrium.&#10;C)gives a solution in both cooperative and non-cooperative games.&#10;D)None of the above.

Accepted Answer

The answer of A Nash bargaining solution&#10;A)is not the same...

Question 64

A disagreement point is&#10;A)an item of contention between the two bargaining players.&#10;B)a way of keeping score in a negotiation.&#10;C)the point in a negotiation where the players cannot reach an agreement.&#10;D)the outcome that occurs if there is no agreement in a bargain.

Accepted Answer

The answer of A disagreement point is&#10;A)an item of contention...

Deck 12: Game Theory and Business Strategy