Deck 11: Game Theory and Strategic Behavior

Question 1

In game theory, a dominant strategy refers to a choice

A) that is the best response to the strategy selected by another player.
B) that is the best response regardless of the strategy selected by another player.
C) that results in the player receiving a higher payoff than any other players.
D) All of the above are correct.

Answer 1

that is the best response regardless of the strategy selected by another player.

Question 2

The prisoners' dilemma explains why

A) oligopolists earn zero economic profits in the long run.
B) firms with lower production costs tend to dominate oligopolistic industries.
C) cartels are inherently unstable.
D) dominant firms are price leaders.

Answer 2

cartels are inherently unstable.

Question 3

In repeated games, a strategy that involves attacking players that attack you and cooperating with players that cooperate with you is a

A) dominant strategy.
B) Nash equilibrium.
C) prisoners' dilemma.
D) tit-for-tat strategy.

Answer 3

tit-for-tat strategy.

Question 4

In a two-player game, which of the following is a Nash equilibrium?

A) Each player chooses a strategy that is optimal given the other's choice.
B) The quantity supplied by one player is equal to the quantity demanded by the second player.
C) Both players have excess capacity.
D) Both players are duopolists in an oligopolistic industry.

Question 5

Suppose that the firms in an oligopolistic market engage in a price war and, as a result, all firms earn lower profits. Game theory would describe this as

A) an irrational strategy.
B) a prisoners' dilemma.
C) price leadership.
D) a contestable market.

Question 6

Which of the following is a nonzero-sum game?

A) Chess
B) Poker
C) Rock, paper, scissors
D) None of the above is correct.

Question 7

Which of the following is a zero-sum game?

A) Prisoners dilemma
B) Competition for market share
C) Pricing strategy
D) None of the above is correct.

Question 8

Which of the following defines a zero-sum game?

A) All players end up with zero dollars.
B) The lowest return received by any player in the game is zero.
C) The negative effects plus the positive effects of the game sum to zero.
D) None of the above is correct.

Question 9

Which of the following is a game in which players will be better off if they do not select their dominant strategies?

A) Zero-sum game
B) Prisoners' dilemma
C) Sequential game
D) Credible threat

Question 10

If a firm has a reputation for engaging in destructive price wars, then its rivals will be less likely to engage in price competition. The firm's reputation represents a

A) zero-sum game.
B) prisoners' dilemma.
C) credible threat.
D) backward induction.

Question 11

If a two-player game has a Nash equilibrium, then

A) both players must have dominant strategies.
B) the game must be a zero-sum game.
C) the game must be a nonzero-sum game.
D) None of the above is correct.

Question 12

Which of the following is an example of the prisoners' dilemma?

A) Firms in an industry increase their advertising expenditures, causing profits to rise.
B) A country provides subsidies to high technology firms, which are consequently able to increase market share.
C) Members of a commodity cartel produce excess output, driving down market price.
D) All of the above are correct.

Question 13

Which of the following situations is a game theory problem?

A) A perfectly competitive firm determines how much to produce.
B) An oligopolist decides whether or not to introduce a new product.
C) A monopolist chooses its pricing strategy.
D) None of the above is correct.

Question 14

Advertising is an example of

A) tit-for-tat strategy.
B) a credible threat.
C) industrial strategy.
D) nonprice competition.

Question 15

A firm that considers the potential reactions of its competitors when it makes a decision

A) is referred to as a price leader.
B) is engaged in strategic behavior.
C) is engaged in collusion.
D) is referred to as a barometric firm.

Question 16

Which of the following is an example of strategic behavior?

A) A firm builds excess capacity to discourage the entry of competitors.
B) A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise.
C) Firms in an industry increase advertising expenditures to avoid losing market share.
D) All of the above are examples of strategic behavior.

Question 17

Which one of the following is not a part of every game theory model?

A) Players
B) Payoffs
C) Probabilities
D) Strategies

Question 18

In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as

A) the dominant strategy.
B) the game-winning choice.
C) super-optimal.
D) a gonzo selection.

Question 19

Which of the following circumstances in an industry will result in a Nash equilibrium?

A) All firms have a dominant strategy and each firm chooses its dominant strategy.
B) All firms have a dominant strategy, but only some choose to follow it.
C) All firms have a dominant strategy, and none choose it.
D) None of the above is correct.

Question 20

Which of the following describes a Nash equilibrium?

A) A firm chooses its dominant strategy, if one exists.
B) Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
C) Market price results in neither a surplus nor a shortage.
D) All firms in an industry are earning zero economic profits.

Question 21

A prisoners' dilemma is a game with all of the following characteristics except one. Which one is not present in a prisoners' dilemma?

A) Players cooperate in arriving at their strategies.
B) Both players have a dominant strategy.
C) Both players would be better off if neither chose his or her dominant strategy.
D) The payoff from a strategy depends on the choice made by the other player.

Question 22

Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?

A) A law that prevents a cartel from enforcing rules against cheating
B) A law that makes it illegal for oligopolists to engage in collusion
C) A law that prohibits firms in an industry from advertising their services
D) All of the above would be likely to solve a prisoners' dilemma for the firms.

Question 23

Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners' dilemma applies to this situation, then the presence of this restriction would be likely to

A) increase profits earned by individuals in these professions.
B) reduce profits earned by individuals in these professions.
C) have no effect on the profits earned by individuals in these professions.
D) increase the profits of some and reduce the profits of other individuals in these professions.

Question 24

Which one of the following conditions is required for the success of a tit-for-tat strategy?

A) Demand and cost conditions must change frequently and unpredictably.
B) The number of oligopolists in the industry must be relatively small.
C) The game can be repeated only a small number of times.
D) Firms must be unable to detect the behavior of their competitors.

Question 25

An oligopolist may engage in short-run behavior that results in lower profits if

A) it leads to a Nash equilibrium.
B) it is a dominant strategy.
C) it is not involved in a repeated game.
D) it lends credibility to the firm's threats.

Question 26

A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to

A) minimize its average cost of production.
B) establish a credible deterrent to the entry of competing firms.
C) take advantage of a dominant strategy in a prisoners' dilemma.
D) attain a Nash equilibrium and avoid repeated games.

Question 27

Game theory is concerned with

A) predicting the results of bets placed on games like roulette.
B) the choice of an optimal strategy in conflict situations.
C) utility maximization by firms in perfectly competitive markets.
D) the migration patterns of caribou in Alaska.

Question 28

Which of the following is an example of a game theory strategy?

A) You scratch my back and I'll scratch yours.
B) If the shoe fits, wear it.
C) Monkey see, monkey do.
D) None of the above is correct.

Question 29

In game theory, a situation in which one firm can gain only what another firm loses is called a

A) nonzero-sum game.
B) prisoners' dilemma.
C) zero-sum game.
D) cartel temptation.

Question 30

Which of the following is a nonzero-sum game?

A) Prisoners' dilemma
B) Chess
C) Competition among duopolists when market share is the payoff
D) All of the above are correct.

Question 31

Which of the following is a zero-sum game?

A) Prisoners' dilemma
B) Chess
C) A cartel member's decision regarding whether or not to cheat
D) All of the above are correct.

Question 32

A plan of action that considers the reactions of rivals is an example of

A) accounting liability.
B) strategic behavior.
C) accommodating behavior.
D) risk management.

Question 33

In game theory, the outcome or consequence of a strategy is referred to as the

A) payoff.
B) penalty.
C) reward.
D) end-game strategy.

Question 34

A game that involves interrelated decisions that are made over time is a

A) sequential game.
B) repeated game.
C) zero-sum game.
D) nonzero-sum game.

Question 35

A game that involves multiple moves in a series of identical situations is called a

A) sequential game.
B) repeated game.
C) zero-sum game.
D) nonzero-sum game.

Question 36

Sequential games can be solved using

A) tit-for-tat.
B) dominated strategies.
C) backward induction.
D) risk averaging.

Question 37

Industrial policy

A) is strategic behavior that takes place at the national level.
B) may be accomplished by protecting and subsidizing selected industries.
C) is intended to provide competitive advantage to selected firms.
D) All of the above are correct.

Question 38

A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of

A) a prisoners' dilemma.
B) collusion.
C) a credible threat.
D) tit-for-tat.

Question 39

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { player II}\\\hline && \text { A } & \text { B } \\\hline\text { player I}& \text { A } & (100,100) & (0,200) \\\hline &\text { B } & (200,0) & (300,300) \\\hline\end{array}$ The matrix above represents the payoffs to each player (I and Ii)based on their selected strategies (A and B) . For example, if player I selects B as its strategy and player II selects A, then the payoffs will be 200 to player I and 0 to player II. What is the dominant strategy for player II in this game?

A) A
B) B
C) Both
D) None

Question 40

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { player II}\\\hline && \text { A } & \text { B } \\\hline\text { player I}& \text { A } & (100,100) & (0,200) \\\hline &\text { B } & (200,0) & (300,300) \\\hline\end{array}$ The matrix above represents the payoffs to each player (I and Ii)based on their selected strategies (A and B) . For example, if player I selects B as its strategy and player II selects A, then the payoffs will be 200 to player I and 0 to player II. What is the best response strategy of player I to player II's choice of strategy A?

A) A
B) B
C) Both
D) None

Question 41

Consider the following game:
$\begin{array}{|c|c|c|c|}&&\text { player II}\\\hline && \text { A } & \text { B } \\\hline\text { player I}& \text { A } & (150,150) & (0,200) \\\hline &\text { B } & (250,0) & (300,300) \\\hline\end{array}$ How many (if any) Nash equilibria does this game have?

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

Question 42

Consider the following game:
$\begin{array}{|c|c|c|c|}&&\text { player II}\\\hline && \text { A } & \text { B } \\\hline\text { player I}& \text { A } & (100,100) & (100,200) \\\hline &\text { B } & (200,100) & (0,0) \\\hline\end{array}$ Does player I have a dominant strategy and if yes, what is it?

A) Yes, A
B) Yes, B
C) No, there are no dominant strategies
D) Not enough information is provided

Question 43

In the secondary markets, stock option investors make money from the loss of other stock option investors. In fact, the losses of one investor become the return to the other. Would you consider this type of option investment as

A) A zero-sum game
B) A positive-sum game
C) A negative-sum game
D) None of the above

Question 44

Two beverage firms compete for sales by increasing advertising. This competition and expenditures on advertising increase the number of sales for the whole industry and they both post high profits. This is an example of

A) a zero-sum game.
B) a positive-sum game.
C) a negative-sum game.
D) none of the above.

Question 45

The only two window makers compete for sales by increasing advertising. The two firms counter each other with higher and higher expenditures on advertising causing profits to be negative for both firms. This is an example of

A) a zero-sum game.
B) a positive-sum game.
C) a negative-sum game.
D) none of the above.

Question 46

A plan of action of an oligopolist after taking into consideration reactions of the competitors is best known as

A) dominant strategy.
B) Nash behavior.
C) strategic behavior.
D) none of the above

Question 47

A plan of action of an oligopolist after taking into consideration reactions of the competitors is best known as

A) dominant strategy.
B) Nash behavior.
C) strategic behavior.
D) none of the above

Question 48

Firm A is better of spending high on advertising no matter what Firm B does. We can say that Firm A has a

A) dominant strategy.
B) Nash equilibrium.
C) strategic behavior.
D) none of the above

Question 49

Which of the following is a nonzero-sum game?

A) Drag racing
B) Checkers
C) Competing for market share.
D) None of the above is correct.

Question 50

Doing to your opponent what he has just done to you is known as

A) strategic behavior.
B) Nash behavior.
C) tit-for-tat.
D) none of the above.

Question 51

Gaining a significant benefit from being the first to introduce a new product or service is known as

A) first-mover advantage.
B) a Nash equilibrium strategy.
C) tit-for-tat.
D) a dominant strategy.

Question 52

A diagram with nodes and connections between them showing possible sequential decisions and outcomes is known as a

A) strategic behavior tree.
B) Nash equilibrium tree.
C) game theory tree.
D) decision tree.

Question 53

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { player II}\\\hline && \text { A } & \text { B } \\\hline\text { player I}& \text { A } & (400,300) & (200,200) \\\hline &\text { B } & (100,150) & (300,100) \\\hline\end{array}$ In the matrix above the first number represents the payoff to Player I and the second number to Player II. For example, if both players choose action A, then Player I gains 400 and Player II gains 300. What is the dominant strategy for player I in this game?

A) A
B) B
C) Both
D) None

Question 54

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { Player II }\\\hline& &{\mathrm{A}} & \mathrm{B} \\\hline \text { Player I }&\mathrm{A} & (400,300) & (200,200) \\\hline & B & (100,150) & (300,100)\\\hline\end{array}$ In the matrix above the first number represents the payoff to Player I and the second number to Player II. For example, if both players choose action A, then Player I gains 400 and Player II gains 300. What is the dominant strategy for player II in this game?

A) A
B) B
C) Both
D) None

Question 55

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { Player II }\\\hline& &{\mathrm{A}} & \mathrm{B} \\\hline \text { Player I }&\mathrm{A} & (400,300) & (200,200) \\\hline & B & (100,150) & (300,100)\\\hline\end{array}$ In the matrix above the first number represents the payoff to Player I and the second number to Player II. For example, if both players choose action A, then Player I gains 400 and Player II gains 300. What is the best response of Player I if Player II chooses B?

A) A
B) B
C) Both
D) None

Question 56

Consider the following simultaneous move game:
$\begin{array}{|c|c|c|c|}&&\text { Player II }\\\hline& &{\mathrm{A}} & \mathrm{B} \\\hline \text { Player I }&\mathrm{A} & (400,300) & (200,200) \\\hline & B & (100,150) & (300,100)\\\hline\end{array}$ In the matrix above the first number represents the payoff to Player I and the second number to Player II. For example, if both players choose action A, then Player I gains 400 and Player II gains 300. What is the best response of Player I if Player II chooses A?

A) A
B) B
C) Both
D) None

Question 57

Consider the following simultaneous move game:
The matrix above represents the decisions and payoffs to Firm A and Firm B. If Firm A chooses low price, what is the best response of Firm B?

A) High price
B) Low price
C) Both equal
D) None

Question 58

Consider the following simultaneous move game:
The matrix above represents the decisions and payoffs to Firm A and Firm B. If Firm A chooses high price, what is the best response of Firm B?

A) High price
B) Low price
C) Both equal
D) None

Question 59

Consider the following game:
The matrix above represents the decisions and payoffs to Firm A and Firm B. What is the solution to this game or what is the most likely outcome of this game?

A) Firm A: high price, Firm B: low price
B) Firm A: high price, Firm B: high price
C) Firm A: low price, Firm B: low price
D) Firm A: low price, Firm B: high price

Question 60

Strategic behavior refers to decisions made in the long run, but not the short run.

Question 61

A table that gives the profits that will result from all possible combinations of a firm's available strategies and its opponent's available responses is called a payoff matrix.

Question 62

Dominant strategy refers to the behavior of the price leader in an industry with a dominant firm.

Question 63

One of the postulates of game theory is that a firm will always have a single dominant strategy.

Question 64

A Nash equilibrium results when every firm in an industry chooses a strategy that is optimal given the strategies chosen by its competitors.

Question 65

The prisoners' dilemma is a situation where each player chooses a dominant strategy but each could do better if both chose different strategies.

Question 66

A tit-for-tat strategy makes it possible for firms to cooperate without colluding.

Question 67

A firm that establishes a reputation for aggressive and irrational behavior may be attempting to establish a credible threat to its competitors.

Question 68

While game theory is useful in analyzing the behavior of individual oligopolists, it does not apply to the behavior of nations that are engaged in competitive behavior.

Question 69

Strategic behavior recognizes that, under oligopoly, one firm's decision does not affect other firms.

Question 70

A defining characteristic of oligopoly is that all firms in an industry typically consider the reactions of competitors when they formulate strategy.

Question 71

Game theory is primarily concerned with the study of games like roulette and dice.

Question 72

When two children fight over a piece of cake, it is an example of a zero-sum game.

Question 73

Game theory can be used to predict the behavior of nations in conflict.

Question 74

When two movie theater chains pay for advertisements proposing that people should "go out and see a show tonight," their expenditures are strategies in a zero-sum game where profit is the payoff.

Question 75

If the payoffs in a game are measured in terms of market share, then duopolists are engaged in a nonzero-sum game.

Question 76

A firm's dominant strategy is superior or equivalent to any other available strategy.

Question 77

A rational firm will select a dominant strategy, if one exists.

Question 78

Game theory predicts that players will always have a dominant strategy.

Question 79

A dominant strategy equilibrium is always a Nash equilibrium.

Question 80

A Nash equilibrium is always a dominant strategy equilibrium.