Page 1
1.
Game theory is commonly used to explain behavior in oligopolies because oligopolies
are characterized by:
A)
large profits in the long run.
B)
either homogeneous or heterogeneous products.
C)
interdependence.
D)
imperfect competition.
2.
An analytical approach through which strategic choices can be assessed is called:
A)
cost-benefit analysis.
B)
econometric theory.
C)
game theory.
D)
monopolistic competition.
3.
One framework used to analyze strategic choices is:
A)
the tacit supply curve model.
B)
game theory.
C)
perfect competition.
D)
risk assessment.
4.
The study of behavior in situations of interdependence is known as:
A)
dominant strategies.
B)
game theory.
C)
the Nash equilibrium.
D)
tacit collusion.
5.
In the classic prisoners’ dilemma with two accomplices in crime, the dominant strategy
for each individual is to:
A)
not confess.
B)
confess.
C)
confess only if the other confesses.
D)
This game does not have a dominant strategy.
6.
In the classic prisoners’ dilemma with two accomplices in crime, the Nash equilibrium is
for:
A)
neither to confess.
B)
both to confess.
C)
one to confess and the other not to confess.
D)
This game does not have a Nash equilibrium.
Page 2
7.
Gary’s Gas and Frank’s Fuel are the only two providers of gasoline in their town. Gary
and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, “I’ll
cheat on the cartel because, regardless of what Frank does, cheating gives me the best
payoff.” This is an example of:
A)
a dominant strategy.
B)
a tit-for-tat strategy.
C)
an irrational strategy.
D)
product differentiation.
8.
An action is a dominant strategy when it is a player’s best action:
A)
regardless of the actions by other players.
B)
given certain profit-maximizing actions of other players.
C)
assuming the other players do not correctly anticipate the action.
D)
if there is only one other competitor.
Use the following to answer question 9:
Figure: Payoff Matrix I for Blue Spring and Purple Rain
9.
(Ref 31-1 Figure: Payoff Matrix I for Blue Spring and Purple Rain) Use Figure: Payoff
Matrix I for Blue Spring and Purple Rain. The figure refers to two producers of bottled
water. Each has two strategies available to it: a high price and a low price. The dominant
strategy for Purple Rain is to:
A)
charge a low price.
B)
charge a high price.
C)
adopt the same strategy as Blue Spring.
D)
Purple Rain does not have a dominant strategy.
Page 3
Use the following to answer questions 10-11:
Figure: Payoff Matrix for Ajinomoto and ADM
10.
(Ref 31-2 Figure: Payoff Matrix for Ajinomoto and ADM) Use Figure 31-2: Payoff
Matrix for Ajinomoto and ADM. The optimal combination for maximum combined
profit occurs when ADM produces _____ million pounds and Ajinomoto produces
_____ million pounds.
A)
30; 30
B)
40; 40
C)
30; 40
D)
40; 30
11.
(Ref 31-2 Figure: Payoff Matrix for Ajinomoto and ADM) Use Figure 31-2: Payoff
Matrix for Ajinomoto and ADM. The Nash equilibrium combination occurs when ADM
produces _____ million pounds and Ajinomoto produces _____ million pounds.
A)
30; 30
B)
40; 40
C)
30; 40
D)
40; 30
Page 4
Use the following to answer questions 12-13:
Figure: Prisoners’ Dilemma for Thelma and Louise
12.
(Ref 31-3 Figure: Prisoners’ Dilemma for Thelma and Louise) Use Figure 31-3:
Prisoners’ Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed
for murder. Given the payoff matrix in the figure, the optimal behavior for Thelma and
Louise to minimize their joint sentence is for Thelma _____ and for Louise ____.
A)
to confess; not to confess.
B)
to confess; to confess.
C)
not to confess; to confess
D)
not to confess; not to confess
13.
(Ref 31-3 Figure: Prisoners’ Dilemma for Thelma and Louise) Use Figure 31-3:
Prisoners’ Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed
for murder. Given the payoff matrix in the figure, the Nash equilibrium behavior is for
Thelma _____ and Louise _____.
A)
to confess; not to confess
B)
to confess; to confess
C)
not to confess; to confess
D)
not to confess; not to confess
Page 5
Use the following to answer questions 14-15:
Figure: Payoff Matrix for the United States and the European Union
14.
(Ref 31-4 Figure: Payoff Matrix for the United States and the European Union) Use
Figure 31-4: Payoff Matrix for the United States and the European Union. Suppose that
the United States and the European Union both produce corn, and each region can make
more profit if output is limited and the price of corn is high. The joint profit-maximizing
combination is for the United States to produce a _____ output and the European Union
to produce a _____ output.
A)
high; high
B)
high; low
C)
low; low
D)
low; high
15.
(Ref 31-4 Figure: Payoff Matrix for the United States and the European Union) Use
Figure 31-4: Payoff Matrix for the United States and the European Union. Suppose that
the United States and the European Union both produce corn, and each region can make
more profit if output is limited and the price of corn is high. The Nash equilibrium
combination is for the United States to produce a _____ output and the European Union
to produce a _____ output.
A)
high; high
B)
high; low
C)
low; low
D)
low; high
16.
The outcome of a strategic choice is called a:
A)
payoff.
B)
game.
C)
product.
D)
dilemma.
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17.
Suppose that each of two prisoners has the independent choice of confessing to a crime
or not confessing to a crime they were both alleged to commit. If neither confesses, both
spend two years in prison; if both confess, both spend three years in prison. If one
confesses and the other does not, the confessor gets off with one year but the other gets
six years. According to game theory, the MOST likely strategy of the prisoners is that:
A)
both will confess.
B)
neither will confess.
C)
one will confess and the other will not.
D)
both may or may not confess.
18.
Suppose that each of the two firms in a duopoly has the independent choice of
advertising or not advertising. If neither advertises, each gets $10 million in profit; if
both advertise, their profits will be $5 million each; and if one advertises while the other
does not, the advertiser gets profit of $15 million and the other gets profit of $2 million.
According to game theory, the Nash equilibrium is that:
A)
both may or may not advertise.
B)
one will advertise and the other will not.
C)
both will advertise.
D)
neither will advertise.
19.
Suppose that each of the two firms in a duopoly has the independent choice of
advertising or not advertising. If neither advertises, each gets $10 million in profit; if
both advertise, their profits will be $5 million each; and if one advertises while the other
does not, the advertiser gets profit of $15 million and the other gets profit of $2 million.
According to game theory, if the firms collude to maximize joint profits:
A)
both may or may not advertise.
B)
one will advertise and the other will not.
C)
both will advertise.
D)
neither will advertise.
20.
A strategy that is the same, regardless of the action of the other player in a game, is a
_____ strategy.
A)
competitive
B)
trigger
C)
dominant
D)
tit-for-tat
Page 7
21.
A dominant-strategy equilibrium occurs when:
A)
a player has no choice.
B)
all players’ action of choice is always best for them, regardless of the action of the
other players.
C)
each player makes the best choice given the choice of the other player.
D)
no player is able to dictate the actions of any other player.
Use the following to answer questions 22-23:
22.
(Ref 31-5 Table: Two Rival Gas Stations) Use Table 31-5: Two Rival Gas Stations. The
table shows a payoff matrix for two gas stations in a small town. Each firm can set
either a high price or a low price, and customers view these two firms as nearly perfect
substitutes. Profits in each cell of the payoff matrix are given as (Swifty’s profit,
Speedy’s profit). If each firm sets the price independently, the Nash equilibrium
outcome will be:
A)
$100, $100.
B)
$150, $25.
C)
$25, $150.
D)
$50, $50.
23.
(Ref 31-5 Table: Two Rival Gas Stations) Use Table 31-5: Two Rival Gas Stations. The
table shows a payoff matrix for two gas stations in a small town. Each firm can set
either a high price or a low price, and customers view these two firms as nearly perfect
substitutes. Profits in each cell of the payoff matrix are given as (Swifty’s profit,
Speedy’s profit). Which statement describes a dominant strategy?
A)
Swifty will always set a low price, no matter Speedy’s choice.
B)
Swifty will always set a high price, no matter Speedy’s choice.
C)
Swifty will set a low price when Speedy sets a high price, but Swifty will set a high
price when Speedy sets a low price.
D)
Swifty will set a high price when Speedy sets a high price, but Swifty will set a low
price when Speedy sets a low price.
Page 8
24.
In game theory, when a player has an action that is always best for that player,
regardless of the action taken by the other player(s) in a game, we say this player has a
_____ strategy.
A)
competitive
B)
trigger
C)
dominant
D)
tit-for-tat
25.
A dominant-strategy equilibrium exists in a game when:
A)
no player has a choice.
B)
every player has a clear best action that does not depend on the action of the other
players.
C)
each player’s choices are dependent on the actions of other players.
D)
no player is able to dictate or predict the actions of any other player.
26.
Gary’s Gas and Frank’s Fuel are the only two providers of gasoline in their small town.
Gary summarizes his pricing strategy as, “I’ll do to Frank (price-wise) what Frank did to
me last time.” This is an example of:
A)
a dominant strategy.
B)
a tit-for-tat strategy.
C)
an irrational strategy.
D)
product differentiation.
27.
If rival solar roof panel manufacturers in Reno limit production and _____ prices in a
way that increases their profits without meeting with one another in a formal way, they
are engaging in _____ collusion.
A)
lower; tacit
B)
raise; tacit
C)
lower; explicit
D)
raise; explicit
28.
Tacit collusion is difficult to achieve in practice:
A)
the larger the number of firms in the industry.
B)
the fewer the number of products being sold.
C)
the more similar the marginal costs of each firm.
D)
if customers have little or no bargaining power.
Page 9
29.
When a firm responds to a rival’s cheating by cheating and to a rival’s cooperation by
cooperating, that firm is practicing a _____ strategy.
A)
dominant
B)
trigger
C)
conclusive
D)
tit-for-tat
30.
Unwritten or unspoken understandings through which firms restrict competition are
called:
A)
cartel agreements.
B)
oligopoly agreements.
C)
overt collusion.
D)
tacit collusion.
31.
Which statement is true?
A)
Once an industry has achieved tacit collusion, producers have an incentive to raise
prices.
B)
Tacit collusion is legal in the United States.
C)
The fact that one firm changes its price shortly after another firm does is proof of
tacit collusion.
D)
It is difficult to determine how much tacit collusion exists in a particular industry;
hence, tacit collusion remains hard to prosecute in the United States.
32.
An unwritten, unspoken agreement through which firms limit competition among
themselves is called:
A)
satisfying.
B)
tacit collusion.
C)
overt collusion.
D)
a cartel.
33.
When firms in a particular industry informally agree to charge the same price as the
largest firm in that industry, it is called:
A)
satisfying.
B)
price extortion.
C)
overt collusion.
D)
tacit collusion.
Page 10
34.
Which statement is not true about OPEC?
A)
OPEC is the Organization of Petroleum Exporting Countries.
B)
OPEC is an international cartel made up of oil-producing countries.
C)
OPEC is the cartel that was responsible for the large increases in crude oil prices in
the 1970s.
D)
OPEC operates in a perfectly competitive market.
35.
A well-known example of an international cartel is:
A)
Japan.
B)
OPEC.
C)
Exxon.
D)
General Motors.
36.
Tacit collusion in an industry is limited by:
A)
a small number of firms.
B)
simple products and pricing.
C)
monopoly power.
D)
a large number of firms and the bargaining power of buyers.
37.
Which statement does not describe OPEC?
A)
OPEC is the Organization of Petroleum Exporting Countries.
B)
OPEC is an international cartel made up of 12 oil-producing countries and two
unofficial members.
C)
OPEC is the cartel that was responsible for the large increases in crude oil prices in
the 1970s.
D)
OPEC is the name of the free-trade zone encompassing the Middle East and other
oil-producing nations.
38.
OPEC is a(n) _____ cartel that includes _____ national governments.
A)
illegal; 12
B)
legal; 12
C)
illegal; 11
D)
legal; 8
39.
_____ is the unwritten or unspoken agreement through which firms limit _____.
A)
A satisfying agreement; price increases
B)
Tacit collusion; competition among themselves
C)
Overt collusion; competition among rivals
D)
A cartel; price changes
Page 11
40.
Which type of strategy is intended to influence the future actions of other players?
A)
dormant
B)
trigger
C)
conclusive
D)
tit-for-tat
Use the following to answer questions 41-42:
Figure: Payoff Matrix for Jake and Zoe
41.
(Ref 31-6 Figure: Payoff Matrix for Jake and Zoe) Use Figure 31-6: Payoff Matrix for
Jake and Zoe. Jake and Zoe are the only producers of slushies in their tourist town.
Every week, each decides whether to price high or price low for the following week.
The figure shows the profit per week earned by their two firms. According to the Nash
equilibrium, Jake prices _____ and Zoe prices _____.
A)
high; high
B)
high; low
C)
low; high
D)
low; low
42.
(Ref 31-6 Figure: Payoff Matrix for Jake and Zoe) Use Figure 31-6: Payoff Matrix for
Jake and Zoe. Jake and Zoe are the only producers of slushies in their tourist town.
Every week, each decides whether to price high or price low for the following week.
The figure shows the profit per week earned by their two firms. Suppose the firms each
decide to price high initially and adopt a tit-for-tat strategy for the following weeks.
After a few weeks, Jake’s weekly profit would be _____ and Zoe’s weekly profit would
be _____.
A)
$800; $800
B)
$1,000; $1,000
C)
$1,500; $200
D)
$200; $1,500
Page 12
Use the following to answer questions 43-46:
Figure: Payoff Matrix II for Blue Spring and Purple Rain
43.
(Ref 31-7 Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure 31-7:
Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of
bottled water. The Nash equilibrium in the figure is reached when Blue Spring charges a
_____ price and Purple Rain charges a _____ price.
A)
high; high
B)
low; low
C)
high; low
D)
low; high
44.
(Ref 31-7 Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure 31-7:
Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of
bottled water. Each has two strategies available to it: a high price and a low price. The
dominant strategy for Purple Rain is to:
A)
charge a low price.
B)
charge a high price.
C)
adopt the same strategy as Blue Spring.
D)
Purple Rain does not have a dominant strategy.
Page 13
45.
(Ref 31-7 Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure 31-7:
Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of
bottled water. Suppose Blue Spring charges a high price and Purple Rain does the same.
In the next period, Blue Spring charges a low price and Purple Rain incurs a loss. If
Purple Rain responds with a tit-for-tat strategy, it will:
A)
always charge a low price-the same as its dominant strategy.
B)
make random changes in its price so that Blue Spring is left with no systematic
strategy.
C)
charge a low price in the next period and thereafter charge the same price that Blue
Spring charged in the previous period.
D)
always charge a high price.
46.
(Ref 31-7 Figure: Payoff Matrix II for Blue Spring and Purple Rain) Use Figure 31-7:
Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of
bottled water. If both firms follow a tit-for-tat strategy, then:
A)
both firms will charge a high price.
B)
both firms will charge a low price.
C)
Blue Spring will charge a high price, and Purple Rain will charge a low price.
D)
Purple Rain will charge a high price, and Blue Spring will charge a low price.
Use the following to answer questions 47-49:
Figure: Payoff Matrix for Gehrig and Gabriel
Page 14
47.
(Ref 31-8 Figure: Payoff Matrix for Gehrig and Gabriel) Use Figure 31-8: Payoff
Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade
Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies
available to them: to produce 5,000 figurines each month or to produce 7,000 figurines
each month. The combined profits of the two are maximized if Gehrig produces _____
figurines and Gabriel produces _____ figurines.
A)
5,000; 5,000
B)
7,000; 7,000
C)
7,000; 5,000
D)
5,000; 7,000
48.
(Ref 31-8 Figure: Payoff Matrix for Gehrig and Gabriel) Use Figure 31-8: Payoff
Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade
Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies
available to them: to produce 5,000 figurines each month or to produce 7,000 figurines
each month. For both Gehrig and Gabriel, the dominant strategy is to:
A)
produce 5,000 figurines.
B)
produce 7,000 figurines.
C)
produce between 5,000 and 7,000 figurines.
D)
collude and increase production to more than 14,000 figurines.
49.
(Ref 31-8 Figure: Payoff Matrix for Gehrig and Gabriel) Use Figure 31-8: Payoff
Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade
Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies
available to them: to produce 5,000 figurines each month or to produce 7,000 figurines
each month. If both follow a tit-for-tat strategy, equilibrium will be reached when
Gehrig produces _____ figurines and Gabriel produces _____ figurines.
A)
5,000; 5,000
B)
7,000; 7,000
C)
7,000; 5,000
D)
5,000; 7,000
Page 15
Use the following to answer questions 50-54:
Figure: Pricing Strategy in Cable TV Market I
50.
(Ref 31-9 Figure: Pricing Strategy in Cable TV Market I) Use Figure 31-9: Pricing
Strategy in Cable TV Market I. In the figure, the dominant strategy for CableNorth:
A)
is to advertise.
B)
is not to advertise.
C)
is to do whatever CableSouth does.
D)
does not exist.
51.
(Ref 31-9 Figure: Pricing Strategy in Cable TV Market I) Use Figure 31-9: Pricing
Strategy in Cable TV Market I. In the figure, the dominant strategy for CableSouth:
A)
is to advertise.
B)
is not to advertise.
C)
is to do whatever CableNorth does.
D)
does not exist.
52.
(Ref 31-9 Figure: Pricing Strategy in Cable TV Market I) Use Figure 31-9: Pricing
Strategy in Cable TV Market I. If both CableNorth and CableSouth advertise, then
without any collusion:
A)
CableNorth will stop advertising to maximize profits.
B)
CableSouth will stop advertising to maximize profits.
C)
there will be no incentive for either CableNorth or CableSouth to stop advertising.
D)
there is an incentive for both CableNorth and CableSouth to stop advertising.
Page 16
53.
(Ref 31-9 Figure: Pricing Strategy in Cable TV Market I) Use Figure 31-9: Pricing
Strategy in Cable TV Market I. If neither CableNorth nor CableSouth advertises, then
without any collusion:
A)
CableNorth will begin advertising to maximize profits.
B)
CableSouth will begin advertising to maximize profits.
C)
there will be no incentive for either CableNorth or CableSouth to begin advertising.
D)
there is an incentive for both CableNorth and CableSouth to begin advertising.
54.
(Ref 31-9 Figure: Pricing Strategy in Cable TV Market I) Use Figure 31-9: Pricing
Strategy in Cable TV Market I. If the two firms in the cable TV market collude:
A)
both firms advertise, and each earns $100,000.
B)
neither firm advertises, and each earns $150,000.
C)
CableNorth advertises and earns $130,000, while CableSouth does not advertise
and earns $70,000.
D)
both firms advertise and each earns $130,000.
Use the following to answer questions 55-61:
Figure: Pricing Strategy in Cable TV Market II
55.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. The dominant strategy for CableNorth:
A)
is to charge a high price.
B)
is to charge a low price.
C)
is to charge what CableSouth does.
D)
does not exist.
Page 17
56.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. The dominant strategy for CableSouth:
A)
is to charge a high price.
B)
is to charge a low price.
C)
is to charge what CableNorth does.
D)
does not exist.
57.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. The Nash equilibrium in the cable TV market occurs
when:
A)
both firms set a low price and each earns $90,000.
B)
both firms set a high price and each earns $100,000.
C)
CableNorth sets a high price and earns $80,000, and CableSouth sets a low price
and earns $130,000.
D)
CableNorth sets a low price and earns $130,000, and CableSouth sets a high price
and earns $80,000.
58.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. The noncooperative equilibrium in the cable TV market
occurs when:
A)
CableNorth sets a high price and earns $80,000, and CableSouth sets a low price
and earns $130,000.
B)
CableNorth sets a low price and earns $130,000, and CableSouth sets a high price
and earns $80,000.
C)
both firms set a low price and each earns $90,000.
D)
both firms set a high price and each earns $100,000.
59.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. If the two firms in the cable TV market collude:
A)
CableNorth will set a high price and earn $80,000, and CableSouth will set a low
price and earn $130,000.
B)
CableNorth will set a low price and earn $130,000, and CableSouth will set a high
price and earn $80,000.
C)
both firms will set a low price and each will earn $90,000.
D)
both firms will set a high price and each will earn $100,000.
Page 18
60.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one period
but found that CableSouth followed a noncooperative low-price strategy, and
CableNorth decided to lower prices for the next month, we would say that CableNorth is
following a:
A)
kinked demand model.
B)
dominant strategy.
C)
tit-for-tat strategy.
D)
collusive strategy.
61.
(Ref 31-10 Figure: Pricing Strategy in Cable TV Market II) Use Figure 31-10: Pricing
Strategy in Cable TV Market II. Suppose that, after one month, the cable providers
follow a tit-for-tat strategy. Eventually, they will achieve a tacit collusive equilibrium at
which:
A)
both firms set a low price and each earns $90,000.
B)
both firms set a high price and each earns $100,000.
C)
CableNorth sets a high price and earns $80,000, and CableSouth sets a low price
and earns $130,000.
D)
CableNorth sets a low price and earns $130,000, and CableSouth sets a high price
and earns $80,000.
Use the following to answer questions 62-63:
Page 19
62.
(Ref 31-11 Table: Coke and Pepsi Advertising Game) Use Table 31-11: Coke and Pepsi
Advertising Game. The soft-drink industry is dominated by Coke and Pepsi, and each
firm spends a lot of money on advertising. Suppose each firm is considering a costly
television commercial during halftime of the Super Bowl. The table shows the payoff
matrix of profits that each firm would receive from its advertising decision, given the
advertising decision of their rival. Profits in each cell of the payoff matrix are given as
(Coke, Pepsi). If each firm makes the decision whether to advertise on the Super Bowl
independently, the Nash equilibrium is for Coke _____ and Pepsi _____ during the
Super Bowl.
A)
to advertise; to advertise
B)
not to advertise; not to advertise
C)
not to advertise; to advertise
D)
to advertise; not to advertise
63.
(Ref 31-11 Table: Coke and Pepsi Advertising Game) Use Table 31-11: Coke and Pepsi
Advertising Game. The soft-drink industry is dominated by Coca-Cola and Pepsi, and
each firm spends a lot of money on advertising. Suppose each firm is considering a
costly television commercial during halftime of the Super Bowl. The table shows the
payoff matrix of profits that each firm would receive from their advertising decision,
given the advertising decision of their rival. Profits in each cell of the payoff matrix are
given as (Coke, Pepsi). If both firms expect to play this game repeatedly (every year for
the foreseeable future) and they use a tit-for-tat strategy, in equilibrium, Coke _____
and Pepsi _____.
A)
advertises; does not advertise
B)
does not advertise; advertises
C)
does not advertise; does not advertise
D)
advertises; advertises
64.
Dell and Gateway are close competitors in the personal computer market. Suppose that
each year Dell and Gateway have to decide whether to spend money on costly research
and development (R&D). If both spend money on R&D, each firm will earn $30
million. If neither spends money on R&D, each firm will earn $40 million. If one firm
spends money on R&D and the other does not, the firm that engaged in R&D would
earn $45 million and the firm that did not would earn $25 million.
A) Use a payoff matrix to depict this problem.
B) What is the noncooperative solution to this game?
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65.
Two large universities, Humongous State (HSU) and Behemoth State (BSU), dominate
college basketball. Each basketball program aggressively recruits the best athletes to
attend the university, but the best athletes can skip college and jump immediately to
professional basketball. Each school has two options: they can either illegally pay top
players to enroll and thus increase the winning percentage of the team, or they can
follow the rules and lose the top players to the professional ranks. The table shows the
payoff matrix of winning percentages that each school would achieve based on its
recruiting decision, given the recruiting decision of its rival. Winning percentages in
each cell of the payoff matrix are given as (HSU, BSU).
A) What is the noncooperative Nash equilibrium?
B) Suppose each school considers the future and devises a tit-for-tat strategy. Neither
school will pay players to play basketball so long as the other does not. If one school
breaks the agreement and pays players, the other school will do the same until the first
school stops paying players. If both schools adopt the tit-for-tat strategy, what are the
winning percentages every year? Will this be effective at eliminating the illegal practice
of paying college athletes to play basketball?
66.
(Scenario: Payoff Matrix for Two Firms) Use Scenario: Payoff Matrix for Two Firms.
Firm B has:
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They
are the only two firms in the industry and can either compete or cooperate with each
other, with the following profit results reflecting their actions.
A)
a dominant strategy to compete.
B)
a dominant strategy to cooperate.
C)
two dominant strategies.
D)
no dominant strategy.
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67.
(Scenario: Payoff Matrix for Two Firms) Use Scenario: Payoff Matrix for Two Firms. If
both firms pursue their dominant strategies:
Scenario: Payoff Matrix for Two Firms
The following table provides the payoff matrix for two firms, firm A and firm B. They
are the only two firms in the industry and can either compete or cooperate with each
other, with the following profit results reflecting their actions.
A)
their joint profits are maximized.
B)
their joint profits are not maximized.
C)
their joint profits reflect an equal sharing of the total profits.
D)
neither can attain its largest possible profits since there are two dominant strategies
for each firm.
68.
Two players in a game both have an incentive to cheat no matter what the other player
does. Furthermore, if both players cheat in this manner, both players will be worse off.
This is a:
A)
prisoners’ dilemma.
B)
tit-for-tat strategy.
C)
price leadership model.
D)
kinked demand curve model.
69.
A strategy in which players cooperate initially but then mimic what the other players do
is referred to as a:
A)
prisoners’ dilemma.
B)
tit-for-tat strategy.
C)
price leadership model.
D)
kinked demand curve model.
70.
Firms will choose a tit-for-tat strategy if they:
A)
expect that price wars will ultimately provide benefits for the dominant firm.
B)
believe that the firms in the industry will be competing with each other for a long
time.
C)
do not believe interdependence is a prominent characteristic of the industry.
D)
are sure that cheating behavior will go unnoticed.
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71.
When countries spend increasingly large amounts of funds on military production as a
means of impressing an equally powerful antagonistic neighbor with possible military
superiority, a prisoners’ dilemma evolves since both countries would be better off if they
did not pursue such a strategy. This is an example of:
A)
a tacit agreement.
B)
an arms race.
C)
a price leadership model.
D)
exclusive dealing.
72.
(Scenario: Payoff Matrix for Firms X and Y) Use Scenario: Payoff Matrix for Firms X
and Y. If firm Y were to choose its dominant strategy, it would:
Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this
oligopolistic industry.
A)
choose a low price.
B)
choose a high price.
C)
encounter a dilemma since there are two dominant strategies.
D)
allow firm X to dominate the industry.
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73.
(Scenario: Payoff Matrix for Firms X and Y) Payoff Matrix for Firms X and Y. If firm
X were to choose its dominant strategy, it would:
Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this
oligopolistic industry.
A)
choose a low price.
B)
choose a high price.
C)
encounter a dilemma since there are two dominant strategies.
D)
allow firm Y to dominate the industry.
74.
(Scenario: Payoff Matrix for Firms X and Y) Payoff Matrix for Firms X and Y. If firm
X and firm Y wish to maximize joint profits:
Scenario: Payoff Matrix for Firms X and Y
The following payoff matrix depicts the profits for the only two firms in this
oligopolistic industry.
A)
each firm should choose its dominant strategy.
B)
firm Y should choose a dominant strategy and firm X should choose a
nondominant strategy.
C)
each should consider its specific situation before choosing a strategy since
strategies also entail costs.
D)
each should choose a nondominant strategy.
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