Chapter 13

1) A Nash equilibrium occurs when: A) each firm is doing the best it can, given its opponents' actions. B) each firm chooses the strategy that maximizes its minimum gain. C) a player can choose a strategy that is optimal regardless of its rivals' actions. D) there is no dominant firm in a market.

A

11) Why does cooperative behavior break down in games with finite endpoints? A) Each player has an incentive to deviate from a cooperative strategy during the last period. B) A Nash equilibrium in pure strategies is not possible in finite repeated games. C) Finite games have the same outcomes as one-period games, and cooperation is not possible in oneperiod games. D) A Nash equilibrium is only possible in mixed strategies in finite repeated games, but all of the probabilities assigned to particular strategies approach zero as the number of finite game periods becomes large. Thus, we cannot evaluate the expected payoffs in these games.

A

2) A maximin strategy: A) maximizes the minimum gain that can be earned. B) maximizes the gain of one player, but minimizes the gain of the opponent. C) minimizes the maximum gain that can be earned. D) involves a random choice between two strategies, one which maximizes potential gain and one which minimizes potential loss.

A

2) Your economics professor has decided that your class will not be graded on a curve but on an absolute scale. Therefore, it is possible for every student in the class to get an "A." Your grade will not depend in any way on your classmates' performance. Based on this information, you decide that you should study economics three hours each day, regardless of what your classmates do. In the language of game theory, your decision to study three hours each day is: A) a dominant strategy. B) a minimax strategy. C) a maximin strategy. D) a Prisoners' Dilemma.

A

3) Which of the following are examples of cooperative games? A) The bargaining between a buyer and seller over the price of a car B) Independent action by two firms in a market regarding advertising strategies C) Independent pricing strategies by two firms in a market D) Independent pricing strategies by many firms in a market E) Team games (such as baseball or basketball)

A

4) In the spring of 1994, Northwest Airlines took the independent action of reducing fares on its flights. Other competing airlines quickly matched the fare cuts. These actions might be interpreted as: A) a noncooperative game. B) a cooperative game. C) a constant sum game. D) a competitive game.

A

7) The relationship between a pure-strategy Nash equilibrium and a dominant-strategy equilibrium is that: A) a dominant-strategy equilibrium is a special case of a pure-strategy Nash equilibrium. B) a pure-strategy Nash equilibrium is a special case of a dominant-strategy equilibrium. C) they are the same. D) there may not be a dominant-strategy equilibrium, but there always is a pure-strategy Nash equilibrium. E) they are mutually exclusive and exhaustive, in that a dominant-strategy equilibrium is the same thing as a mixed-strategy Nash equilibrium.

A

2) Repetition of a game: A) yields the same outcome, over and over. B) can result in behavior that is different from what it would be if the game were played only once. C) is not possible. D) makes cooperative games into non-cooperative games. E) is possible only if the payoffs in the matrix change.

B

2) You are playing a game in which a dollar bill is auctioned. The highest bidder receives the dollar in return for the amount bid. However, the second-highest bidder must pay the amount that he or she bids, and gets nothing in return. The optimal strategy is: A) to bid the smallest allowable increment below $1. B) to bid nothing. C) to bid $0.99. D) to bid more than a dollar.

B

4) It can be rational to play tit-for-tat in a repeated Prisoners' Dilemma game: A) only if the game is played an infinite number of times. B) if the game is played an infinite number of times, or if it is uncertain how many times it will be played. C) only if the game is played a finite number of times, and that number is known by all the players in advance. D) for n-1 of the n periods it will be played, if n is known in advance. E) at no time; tit-for-tat is an irrational strategy in this situation.

B

4) Use the following statements to answer this question: I. If mixed strategies are allowed, every game has at least one Nash equilibrium. II. The maximin strategy is optimal in the game of "matching pennies." A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

B

8) Refer to Scenario 13.1. If your negotiated price had been $350 instead of $250, the sum of consumer surplus and producer surplus would be: A) less than what would have accrued at the $250 price. B) the same as what would have accrued at the $250 price. C) more than what would have accrued at the $250 price. D) None of the above is necessarily correct.

B

8) When cost and demand are stable over time in an industry, repetition of Prisoners' Dilemma situations: A) can yield cooperative outcomes because firms can explicitly collude to set prices. B) can yield cooperative outcomes even when firms do not explicitly collude to set prices. C) will tend to yield noncooperative outcomes. D) will always yield noncooperative outcomes. E) Cooperative or noncooperative outcomes may occur, but cooperation is harder than when the market is unstable.

B

You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. 7) Refer to Scenario 13.1. At your negotiated price the producer surplus is: A) $0. B) $50. C) $200. D) $250. E) $300

B

1) A dominant strategy can best be described as: A) a strategy taken by a dominant firm. B) the strategy taken by a firm in order to dominate its rivals. C) a strategy that is optimal for a player no matter what an opponent does. D) a strategy that leaves every player in a game better off. E) all of the above

C

1) Which of the following conditions, if present, is sufficient to make a game cooperative? A) Individual payoffs are greater if all players choose the same strategy. B) Players can communicate with each other. C) Players can negotiate binding contracts committing them to particular strategies. D) Players must agree unanimously on any set of strategies. E) The payoff that is highest for all individuals together is also highest for each individual player.

C

10) Use the following statements to answer the question: I. Consider the problem of negotiating the price of a rug that costs $100 to make. If there are two buyers (one with a maximum willingness-to-pay of $200 and one with a maximum willingness-to-pay of $250), then the situation is no longer a constant sum game. II. The likely outcome from the game described in statement I is that the second buyer will bid a price slightly above $200 (e.g., $201) to win the rug. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

C

11) There are two independent dealers for Sporto automobiles in a large city. The dealers decide to run a cooperative advertising campaign in which both dealers are listed in local newspapers ads, and they can purchase larger ads that are more likely to attract attention and generate more auto sales if the dealers commit more funds to the joint advertising budget. Is this an example of a cooperative constant-sum game? A) Yes, each firm can contribute zero to 100 percent of the advertising budget, so this is a constant-sum game. B) Yes, all negotiated outcomes between two firms are cooperative and constant-sum situations. C) No, the outcome of the advertising campaign depends on how much money the firms contribute to the campaign, so it is not constant sum. D) No, the firms are independent, so their interaction cannot be cooperative.

C

3) A strategy A is "dominant" for a player X if: A) strategy A contains among its outcomes the highest possible payoff in the game. B) irrespective of any of the possible strategies chosen by the other players, strategy A generates a higher payoff than any other strategy available to player X. C) strategy A is the best response to every strategy of the other player. D) strategy A is the best response to the best strategy of the other player. E) every outcome under strategy A generates positive payoffs.

C

3) Andre Agassi, a star tennis player, is playing the number one player in the world, Roger Federer. Before the match, Agassi decided that he would serve 20 percent of his serves to Federer's backhand, 30 percent of his serves to Federer's forehand, and 50 percent of his serves straight at Federer. In the language of game theory, this is known as: A) a pure strategy. B) a dominant strategy. C) a mixed strategy. D) a maximin strategy

C

9) Which of the following statements represents a key point about strategic decision making? A) Strategy is less important in nonconstant sum games than in constant sum games. B) The payoffs in cooperative games will always be higher than in noncooperative games. C) It is essential to understand your opponent's point of view and to deduce his or her likely responses to your actions. D) Optimal strategies in cooperative games always lead to economically efficient outcomes.

C

You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. 6) Refer to Scenario 13.1. At your negotiated price your consumer surplus is: A) $50. B) $200. C) $250. D) $300.

C

10) Which of the following situations is likely to generate noncooperative behavior in repeated games? A) The game is repeated a finite number of times. B) There are many players in the game. C) The payoffs can change rapidly from one game period to the next. D) All of these situations can generate noncooperative behavior.

D

12) If both players in a game have dominant strategies, we say that the game has: A) a constant sum. B) a nonconstant sum. C) independence of irrelevant alternatives. D) an equilibrium in dominant strategies.

D

12) Which of the following is NOT a key component of every game? A) Strategies B) Players C) Payoffs D) Cooperation

D

13) Use the following statements to answer this question: I. A player must have at least one dominant strategy in a game. II. If neither player in a game has a dominant strategy in a game, then there is no equilibrium outcome for the game. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

D

21) A "mixed strategy" equilibrium means that: A) the strategies chosen by the players represent different behaviors. B) one player has a dominant strategy, and one does not. C) one player has a pure strategy, and one does not. D) the equilibrium strategy is an assignment of probabilities to pure strategies. E) the equilibrium strategy involves alternating between a dominant strategy and a Nash strategy.

D

3) The strategy that worked best in Axelrod's experiments using the Prisoners' Dilemma game was to: A) play the "cooperate" ("don't confess") strategy. B) play the "defect" ("confess") strategy. C) alternate between "cooperate" and "defect" strategies. D) play the "cooperate" strategy at first, and from then on do whatever the other player did in the previous round, cooperating if the other player did, and defecting if the other player did. E) play the "cooperate" strategy in the first round, and from then on cooperate so long as the other player does, but if the other player defects, then play the "defect" strategy from that time forward.

D

5) In a Nash equilibrium, A) each player has a dominant strategy. B) no players have a dominant strategy. C) at least one player has a dominant strategy. D) players may or may not have dominant strategies. E) the player with the dominant strategy will win.

D

9) For infinitely repeated games in which the players follow a tit-for-tat strategy, which one of the following outcomes is NOT possible? A) The players cooperate with one another until someone decides to not cooperate, and then the other players will not cooperate for some period of time. B) There can be dominant strategies. C) If the information about another player's action is limited, then some cooperative actions may be incorrectly interpreted as "not cooperate." D) All of the above are possible outcomes

D

1) A "Credible Threat": A) is also called a "tit-for-tat" strategy. B) always sets a low price. C) minimizes the return of your opponent. D) is a strategy selection that is in your best interest. E) provides the best return for both players.

E

6) Nash equilibria are stable because: A) they involve dominant strategies. B) they involve constant-sum games. C) they occur in noncooperative games. D) once the strategies are chosen, no players have an incentive to negotiate jointly to change them. E) once the strategies are chosen, no player has an incentive to deviate unilaterally from them.

E

You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at $500. The florist's cost for the arrangement is $200. You finally settled on a price of $250. 5) Refer to Scenario 13.1. Your negotiations are an example of: A) a noncooperative game. B) a cooperative game. C) a constant sum game. D) a competitive game. E) both B and C

E