Question 1

Consider the following decision tree.This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. 
If GM cuts prices,the greatest potential gain is:

Accepted Answer

A)   $5 million per year.
B)   $10 million per year.
C)   $2 million per year.
D)   $3 million per year.
E)   none of the above.

Question 2

The difference between game trees and decision trees is:

Accepted Answer

A)   that game trees are not useful in strategic situations.
B)   that decision trees describe actions that depend on the behavior of rivals.
C)   that game trees have interactive payoffs.
D)   that decision trees are a function of many individuals and the state of nature.
E)   none of the above. C

Question 3

Refer to the accompanying matrix.Which of the following is a Nash equilibrium?

Accepted Answer

A)   Company A chooses Strategy 1 and Company B chooses Strategy 1.
B)   Company A chooses Strategy 1 and Company B chooses Strategy 2.
C)   Company A chooses Strategy 2 and Company B chooses Strategy 2.
D)   Company A chooses Strategy 2 and Company B chooses Strategy 1.
E)   None of the above.

Question 4

Consider the following decision tree.This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war.If GM cuts prices and Quaker Oats follows this behavior:

Accepted Answer

A)   GM loses $10 million.
B)   Quaker Oats loses $10 million.
C)   GM loses $2 million.
D)   Quaker Oats loses $2 million.
E)   both firms gain $3 million.

Question 5

Which pair of strategies would cooperative cartel members A and B choose given this payoff matrix?

Accepted Answer

A)   W, Y.
B)   W, Z.
C)   X, Y.
D)   X, Z.
E)   Either X, Y or W, Z.

Question 6

If player 1 has a dominant strategy,then player 2:

Accepted Answer

A)   must also have a dominant strategy.
B)   may or may not have a dominant strategy, but will always lead to a Nash equilibrium.
C)   may or may not have a dominant strategy.
D)   will not be able to reach an optimal solution to the game.
E)   will block this dominant strategy and force player 1 to another strategy.

Question 7

A feasible strategy set is:

Accepted Answer

A)   all actions with a nonzero probability of occurring.
B)   only actions that have a 50% or greater probability of occurring.
C)   actions that result in positive profits for the firm.
D)   actions that a decision maker is willing to take.
E)   the one outcome that the decision maker chooses.

Question 8

By definition,a Nash equilibrium in a duopoly is the situation in which each player:

Accepted Answer

A)   plays a dominant strategy.
B)   plays the best strategy given the other's strategies.
C)   gets the highest possible payoff.
D)   gets the highest payoff possible without lowering the opponent's payoff.
E)   is happy with the outcome.

Question 9

How many Nash equilibria are there in this payoff matrix?

Accepted Answer

A)   0.
B)   1.
C)   2.
D)   3.
E)   4. C

Question 10

Potential entrant E threatens to enter incumbent I's market and I threatens to lower price to P should E enter.It is crucial for E to believe I's threat that:

Accepted Answer

A)   P > I's average total cost.
B)   P > I's average variable cost.
C)   P is low enough to discourage E.
D)   I could conceivably charge P without E's threat.
E)   I's profit with P and no entry are better than expected profits with entry.

Question 11

Suppose that firm A finds itself facing the following payoff matrix in its rivalry with firm B: 
A threatens to play strategy W.This threat is:

Accepted Answer

A)   credible because the Nash equilibrium occurs where A plays W and B plays Z.
B)   credible because the joint optimal solution occurs where A plays W and B plays Z.
C)   not credible because A's dominant strategy is to play X.
D)   credible because A's dominant strategy is to play W.
E)   not credible because B will never play strategy Z.

Question 12

Refer to the accompanying payoff matrix.Which of the following is a Nash equilibrium?

Accepted Answer

A)   Company A chooses Strategy 1 and Company B chooses Strategy 1.
B)   Company A chooses Strategy 1 and Company B chooses Strategy 2.
C)   Company A chooses Strategy 2 and Company B chooses Strategy 2.
D)   Company A chooses Strategy 2 and Company B chooses Strategy 1.
E)   None of the above.

Question 13

A Nash equilibrium occurs when:

Accepted Answer

A)   each player has a dominant strategy.
B)   each player receives the same final payoff.
C)   each player believes it is doing the best it can given the behavior of rivals.
D)   there is no dominant strategy for any player.
E)   payoffs are independent of the actions taken by rivals. C

Question 14

If a firm has a dominant strategy:

Accepted Answer

A)   its optimal strategy depends on the play of rivals.
B)   its optimal strategy is always the same, even if payoffs change.
C)   it is determined by the behavior of only one key rival.
D)   it receives the same profits regardless of the strategy of rivals.
E)   its optimal strategy is independent of the play of rivals.

Question 15

Getting to a Nash equilibrium requires:

Accepted Answer

A)   each knowing the opponent's payoffs and cooperation.
B)   knowing the opponent's payoffs but not cooperation.
C)   cooperation but not knowing the opponent's payoffs.
D)   neither cooperation nor knowing the opponent's payoffs.
E)   either cooperation or knowing the opponent's payoffs, depending on the game.

Question 16

How many Nash equilibria are there in this payoff matrix?

Accepted Answer

A)   0.
B)   1.
C)   2.
D)   3.
E)   4.

Question 17

A dominant strategy is one that:

Accepted Answer

A)   beats all others, regardless of the opponent's choice.
B)   beats all others, given the opponent's choice.
C)   is beaten by all others, regardless of the opponent's choice.
D)   is beaten by all others, given the opponent's choice.
E)   beats at least one other, given the opponent's choice.

Question 18

A player in a game theoretic model is:

Accepted Answer

A)   anyone working for a firm that is operating strategically.
B)   a decision-making entity at a firm involved in a strategic game.
C)   a firm that is operating as a perfect competitor.
D)   a monopolist who produces a unique product with no close substitutes.
E)   a stockholder at a firm involved in a strategic game.

Question 19

Given the following payoff matrix,who has a dominant strategy?

Accepted Answer

A)   It depends on what the other player does.
B)   Both players have it.
C)   Neither player has it.
D)   A does; B doesn't.
E)   B does; A doesn't.

Question 20

Radio City promises if you can find a lower advertised price for anything you bought at Radio City,anywhere in town within 30 days,it will return the difference plus 20%.A sophisticated game theoretic analysis suggests Radio City may be:

Accepted Answer

A)   losing money in the long run.
B)   colluding with other stores.
C)   using a commitment to threaten competitors.
D)   preempting competitors.
E)   using price leadership.

Exam 12: Game Theory

Consider the following decision tree.This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. If GM cuts prices,the greatest potential gain is:

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The difference between game trees and decision trees is:

Correct AnswerverifiedC

Refer to the accompanying matrix.Which of the following is a Nash equilibrium?

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Consider the following decision tree.This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war.If GM cuts prices and Quaker Oats follows this behavior:

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Which pair of strategies would cooperative cartel members A and B choose given this payoff matrix?

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If player 1 has a dominant strategy,then player 2:

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A feasible strategy set is:

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By definition,a Nash equilibrium in a duopoly is the situation in which each player:

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How many Nash equilibria are there in this payoff matrix?

Correct AnswerverifiedC

Potential entrant E threatens to enter incumbent I's market and I threatens to lower price to P should E enter.It is crucial for E to believe I's threat that:

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Suppose that firm A finds itself facing the following payoff matrix in its rivalry with firm B: A threatens to play strategy W.This threat is:

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Refer to the accompanying payoff matrix.Which of the following is a Nash equilibrium?

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A Nash equilibrium occurs when:

Correct AnswerverifiedC

If a firm has a dominant strategy:

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Getting to a Nash equilibrium requires:

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How many Nash equilibria are there in this payoff matrix?

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A dominant strategy is one that:

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A player in a game theoretic model is:

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Given the following payoff matrix,who has a dominant strategy?

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Radio City promises if you can find a lower advertised price for anything you bought at Radio City,anywhere in town within 30 days,it will return the difference plus 20%.A sophisticated game theoretic analysis suggests Radio City may be:

Correct AnswerverifiedShow Answer

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