Question 1

Assume a firm is a monopoly and enjoys $10,000,000 profits per year. The firm lobbies to have a moratorium passed by Congress on new firms in its market for the next 25 years. If there is no discount rate, how much would any firm(s) arguing against the moratorium be willing to spend to block it?

Accepted Answer

A)  something less than $250 million
B)  $250 million
C)  $251 million
D)  $250 billion

Question 2

-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?

Accepted Answer

A)  Firm A has a dominant strategy.
B)  Firm B has a dominant strategy.
C)  Neither firm entering is a Nash equilibrium.
D)  The outcome of the game is unpredictable.

Question 3

If only one firm operates in a market, and a potential entrant is blockaded from entering the market, then the incumbent firm must

Accepted Answer

A)  have acted to prevent entry.
B)  be pricing where price equals marginal cost.
C)  be a natural monopoly.
D)  be the Stackelberg leader.

Question 4

One way to ensure cooperation in an infinitely repeated simultaneous game is

Accepted Answer

A)  to always play the dominant strategy.
B)  to punish the player that reneges on agreements.
C)  to never punish any player.
D)  to always punish all players.

Question 5

The Internet auction site eBay is an example of a(n)

Accepted Answer

A)  Sealed Bid Auction.
B)  Second-Price Auction.
C)  English Auction.
D)  Both A and B.

Question 6

In the 1980s, the USA and the USSR negotiated a reduction in nuclear arms; this is an example of a

Accepted Answer

A)  non-cooperative equilibrium.
B)  cooperative outcome that may not be a Nash equilibrium.
C)  cooperative outcome that was a Nash equilibrium.
D)  sub-game perfect equilibrium.

Question 7

What can be said about a non-credible threat that is part of a Nash equilibrium in a sequential game?

Accepted Answer

A)  It is also part of a sub-game perfect Nash equilibrium.
B)  It cannot be part of a sub-game perfect Nash equilibrium.
C)  It can be a dominated strategy.
D)  It may be a dominant strategy.

Question 8

Deterring entry might require a firm to

Accepted Answer

A)  price their product closer to the competitive price than to the monopoly price.
B)  price their product closer to the monopoly price than to the competitive price.
C)  drop output almost to zero to show the consumers "who's boss."
D)  drop price almost to zero to get price below marginal cost.

Question 9

-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?

Accepted Answer

A)  Neither firm services the route.
B)  Firm A offers firm B $20 to not enter.
C)  Both firms will service this route.
D)  Firm B offers firm A $30 to not enter.

Question 10

Before entering, fixed cost associated with the industry in question are sunk costs for

Accepted Answer

A)  the incumbent firm.
B)  the outside firm.
C)  both firms.
D)  neither firm.

Question 11

In a simultaneous game where both players prefer doing the opposite of what the opponent does, a Nash equilibrium does not exist.

Accepted Answer

A) True 
 B)False

Question 12

-The above figure shows the payoff to two firms, A and B, of releasing two versions of a new product. What is Firm A's best response if Firm B decides to release the high price version?

Accepted Answer

A)  Firm A does not have a best response strategy.
B)  Firm A chooses the low price version.
C)  Firm A chooses the high price version.
D)  Both low price and high price versions are best responses for firm A.

Question 13

-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?

Accepted Answer

A)  Since firm B has no dominant strategy, its decision is unpredictable.
B)  Since firm B's decision is unpredictable, firm A's decision is unpredictable.
C)  Neither firm entering is a Nash equilibrium.
D)  Firm B will not enter because it knows firm A will.

Question 14

Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a simultaneous decision game?

Accepted Answer

A)  Tic-tac-toe
B)  Chess
C)  Poker
D)  Rock-paper-scissors

Question 16

Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?

Accepted Answer

Firm B's reaction function is q_B = 5 - (1...

Question 17

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

Accepted Answer

A)  deterministic strategy.
B)  dominant strategy.
C)  mixed strategy.
D)  non-game theoretic problem.

Question 18

A surprising outcome of the Rock-Paper-Scissors game is that

Accepted Answer

A)  it is a clear example of a first mover advantage.
B)  there is no pure-strategy Nash equilibrium.
C)  it is best not to play the game.
D)  it is a good way to determine who goes first in a sequential move game.

Question 19

-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant. If the fixed cost of entry were to increase, which of the following would occur?

Accepted Answer

A)  The incumbent chooses the Cournot level of output.
B)  The incumbent shuts down.
C)  The entry-deterring level of output rises.
D)  The entry-deterring level of output falls.

Question 20

Winner's curse is likely to happen in which of the following auctions?

Accepted Answer

A)  unexplored oil reserves
B)  corn stored in a warehouse
C)  1,000 ton of iron ore
D)  U.S. Treasury Bonds

Exam 14: Game Theory

A surprising outcome of the Rock-Paper-Scissors game is that

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-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant. If the fixed cost of entry were to increase, which of the following would occur?

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Which of the following is a simultaneous decision game?

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One way to ensure cooperation in an infinitely repeated simultaneous game is

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The Internet auction site eBay is an example of a(n)

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Winner's curse is likely to happen in which of the following auctions?

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-The above figure shows the payoff to two firms, A and B, of releasing two versions of a new product. What is Firm A's best response if Firm B decides to release the high price version?

Correct AnswerverifiedShow Answer

What can be said about a non-credible threat that is part of a Nash equilibrium in a sequential game?

Correct AnswerverifiedShow Answer

-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?

Correct AnswerverifiedShow Answer

Deterring entry might require a firm to

Correct AnswerverifiedShow Answer

Before entering, fixed cost associated with the industry in question are sunk costs for

Correct AnswerverifiedShow Answer

Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?

Correct AnswerverifiedFirm B's reaction function is qB = 5 - (1...View AnswerShow Answer

In a simultaneous game where both players prefer doing the opposite of what the opponent does, a Nash equilibrium does not exist.

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Assume a firm is a monopoly and enjoys $10,000,000 profits per year. The firm lobbies to have a moratorium passed by Congress on new firms in its market for the next 25 years. If there is no discount rate, how much would any firm(s) arguing against the moratorium be willing to spend to block it?

Correct AnswerverifiedShow Answer

Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs.

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-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?

Correct AnswerverifiedShow Answer

If only one firm operates in a market, and a potential entrant is blockaded from entering the market, then the incumbent firm must

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the 1980s, the USA and the USSR negotiated a reduction in nuclear arms; this is an example of a

Correct AnswerverifiedShow Answer

-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?

Correct AnswerverifiedShow Answer

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Firm B's reaction function is q_B = 5 - (1...
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