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| 1 | |
Game theory helps to understand the behavior of firms: |
| | A) | that are strategically independent. |
| | B) | that are strategically interdependent. |
| | C) | that do not face any competition. |
| | D) | that are not profit maximizers. |
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| 2 | |
A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: |
| | A) | prisoner's strategy. |
| | B) | dominated strategy. |
| | C) | dominant strategy. |
| | D) | Nash strategy. |
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| 3 | |
The payoff matrix below shows profits for Southwest Airlines (S) and Northwest Airlines (N) for alternative pricing strategies. The airlines can either hold rates where they are or cut rates.
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Northwest | | | Hold rates | Cut rates | | Hold rates | N=$400 | N=$200 | | | N=$400 | N=$500 | Southwest | | | | | Cut rates | S=$450 | S=$150 | | | N=$350 | N=$250 |
Which of the following statements is accurate regarding the game shown above? |
| | A) | Neither Northwest nor Southwest has a dominant strategy. |
| | B) | Northwest has a dominant strategy but not Southwest. |
| | C) | Southwest has a dominant strategy but not Northwest. |
| | D) | Both Northwest and Southwest have a dominant strategy. |
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| 4 | |
The payoff matrix below shows profits for Southwest Airlines (S) and Northwest Airlines (N) for alternative pricing strategies. The airlines can either hold prices where they are or cut rates.
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Northwest | | | Hold rates | Cut rates | | Hold rates | N=$400 | N=$200 | | | N=$400 | N=$200 | Southwest | | | | | Cut rates | S=$450 | S=$150 | | | N=$350 | N=$250 |
Given the payoff matrix above, what are the expected profits of the two firms? |
| | A) | Southwest = $400; Northwest = $400. |
| | B) | Southwest = $450; Northwest = $350. |
| | C) | Southwest = $200; Northwest = $200. |
| | D) | Southwest = $150; Northwest = $250. |
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| 5 | |
The following payoff matrix represents the long-run payoffs for Al and Babs faced with the option of staying or going. Use it to answer the following question.
| | Babs | | | Stay | Go | | Stay | Al = +400 Babs = +400 | Al = -100 Babs = +500 | Al | | | | | | | | | Go | Al = +500 Babs = -100 | Al = 0 Babs = 0 |
Given the payoff matrix shown above, the expected payoffs for Al and Babs are: |
| | A) | Al = +400; Babs = +400. |
| | B) | Al = -100; Babs = +500. |
| | C) | Al = +500; Babs = -100. |
| | D) | Al = 0; Babs = 0. |
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| 6 | |
A prisoner's dilemma occurs when: |
| | A) | each player has a dominant strategy, and the payoff to each player is larger than what it would be if each had chosen a dominated strategy. |
| | B) | each player has a dominant strategy, and the payoff to each player is smaller than what it would be if each had chosen a dominated strategy. |
| | C) | no player has a dominant strategy and the payoff is as large as possible. |
| | D) | each player would like to choose a moral strategy, but is coerced into choosing to do something illegal. |
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| 7 | |
The following payoff matrix represents the long-run payoffs for Al and Babs faced with the option of staying or going. Use it to answer the following question.
| | Babs | | | Stay | Go | | Stay | Al = +400 Babs = +400 | Al = -100 Babs = +500 | Al | | | | | | | | | Go | Al = +500 Babs = -100 | Al = 0 Babs = 0 |
Which of the following statements is true regarding the game shown above? |
| | A) | This game represents a prisoner's dilemma because each player could have a higher payoff if they played another strategy. |
| | B) | This game does not represent a prisoner's dilemma because both players have the highest possible payoff. |
| | C) | This game does not represent a prisoner's dilemma because both players have a dominant strategy. |
| | D) | This game does not represent a prisoner's dilemma because while Al could have a higher payoff, Babs has the highest possible payoff. |
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| 8 | |
In the sequential game below, Firms 1 and 2 must choose either to raise or lower prices. Firm 1 picks first and Firm 2 picks second. The payoffs to Firm 2 and Firm 1 are represented at the end of each branch. Use it to answer the following question.
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The expected strategy of Firm 1 and Firm 2 are respectively given by: |
| | A) | Raise; Raise. |
| | B) | Lower; Raise. |
| | C) | Raise; Lower. |
| | D) | Lower; Lower. |
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| 9 | |
In the sequential game below, Willie chooses between pinch hitting or not pinch hitting, while Omar chooses between firing or not firing. Willie picks first and Omar picks second. The payoffs to Willie and Omar are represented at the end of each branch. Use it to answer the following question.
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The payoffs in the sequential game above are given by: |
| | A) | Willie=500; Omar=100. |
| | B) | Willie=200; Omar=300. |
| | C) | Willie=400; Omar=500. |
| | D) | Willie=400; Omar=300. |
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| 10 | |
A way of changing incentives so as to make promises credible is known as: |
| | A) | a commitment problem. |
| | B) | a dominant strategy. |
| | C) | a commitment device. |
| | D) | a practical promise. |
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