Managerial Economics - Ch 9

Which of the following is a correct statement about a Nash equilibrium in a two-player game?

Given another player's strategy, no player can improve her welfare by unilaterally changing her strategy.

When analyzing the behavior of oligopolists, which of the following is crucial for the success of game theoretic analysis?

Make sure the problem you are considering is of a one-shot or repeated nature, and you model it accordingly because the order in which players make decisions is important.

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 a perfect equilibrium?

Management requests $49.99, and the labor union accepts $0.01.

When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?

Provide the worker some rewards for good work that extend beyond the termination of employment with your firm.

Which of the following is the major means to signal good quality of goods by firms?

Warranties/Guarantees

It is easier to sustain tacit collusion in an infinitely repeated game if:

the present value of cheating is lower than collusion.

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

Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy.

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is

for each firm to advertise.

Game theory is especially useful for analysis in the following markets:

oligopoly

A dominant strategy is a strategy that:

results in the highest payoff to a player regardless of the opponent's action.