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Exam 10: Game Theory: Inside Oligopoly

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Question 61

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Which of the following is true for a Nash equilibrium of a two-player game?

A) The joint payoffs of the two players are highest compared to other strategy pairs.
B) Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy.
C) A Nash equilibrium is always unique in real world problems.
D) Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy and a Nash equilibrium is always unique in real world problems.

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Question 62

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Use the following information to answer question: Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the following normal form game. -Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one-shot to reach an agreement.Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.If you were the labor union, which type of "rules of play" would you prefer to divide the $50 surplus?

A) One-shot simultaneous-move game.
B) One-shot sequential-move game with management as the first mover.
C) One-shot sequential-move game with labor union as the first mover.
D) One-shot simultaneous-move game and one-shot sequential-move game with management as the first mover.

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Question 63

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Two executives were arrested by authorities for embezzling money from their firm.Short of a confession, the prosecutor only had enough evidence to put them away for 10 years.Given a confession, however, she was certain to put them behind bars for life without parole, since they killed a law enforcement officer who was investigating the case.The prosecutor put the two prisoners in separate rooms, and told them the following: "If you confess and your partner does not, I'll give you a year's probated sentence but put your partner in the slammer for life without parole.Of course, if your partner confesses and you don't, you'll get the life sentence without parole and he'll get one year's probation.I must warn you, however, that if you both confess I'll have enough evidence to put you both away for life without parole." a.Do you think the prosecutor's bargain will induce the two executives to confess? Explain. b.Would your answer change if the life sentence carried the possibility of parole? Explain.

You are the manager of XYZ Inc.and must decide how much output to produce to maximize your firm's profit.XYZ and its rival, ABC Corp., produce a good that consumers view as essentially identical.These two firms make up the entire industry, so the market price for the good depends on the total amount produced by the two firms.A survey reveals that the market price of the product depends on total market output as follows:

A Nash equilibrium is a condition

Which of the following is true?

Collusion is:

A Nash equilibrium with a non-credible threat as a component is:

If you and your rival plan to be in business for 15 years, then the Nash equilibrium is for

Firm B is the incumbent facing potential entry from its rival; Firm A. Firm A's strategies consist of {Entry, Stay Out}.Firm B's strategies are then {hard if entry; hard if stay out; soft if entry; soft if stay out}.Find the subgame Nash equilibrium to this game, if one exists.

Which of the following represents Firm B's full strategy space?

The dominant strategy for Player 2 is:

What are dominant strategies for Firm A and Firm B respectively?

According to various trade publications, over 200,000 changes are made in airfares each day.Why do you think this is the case?

If C = 15, which is the perfect equilibrium of the game?

Suppose Philips and Toshiba are the first companies to introduce digital versatile disk (DVD) machines to the market.Studies by the firms suggest that consumers who purchase consumer electronics are very brand-loyal.To capture future loyalties, each firm will attempt to maximize its initial market share, for one time only, by setting prices.An economist has estimated the initial market share of each firm under different pricing scenarios.Her results are captured in the following payoff matrix.

Game theory suggests that, in the absence of patents, the privately motivated innovation decisions of firms might lead to:

Suppose there is a 10 percent chance that the advertising game depicted in the above payoff matrix will end next period.What is the present value to Firms A of agreeing to the strategy {Do Not Advertise, Do Not Advertising}?

What are the Nash equilibrium strategies for Firm A and Firm B respectively?

Use the following information to answer question: Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the following normal form game. -Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one-shot to reach an agreement.Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is true?