micro review questions
a coalition of firms who agree to restrict output for the purpose of earning an economic profit is called
cartel
a prisoner's dilemma illustrates situations in which
there is a conflict between the narrow self interest of individuals and the broader interests of a group
in sequential games, the player who moves first
sometimes has an advantage and sometimes has a disadvantage
game theory provides tools that are used to model
strategic interdependencies
cartel agreements are difficult to sustain bc
its a dominant strategy for each cartel member to cheat on the cartel agreement
game theory is not useful in understanding perfect competition because in a perfectly competitive market
no single firm can influence the market price, so firms' decisions are not interdependent
emotions like guilt and sympathy
can save commitment problems
the reason that the prisoner's dilemma presents a dilemma is that
each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both chosen their dominated strategies
a decision tree is used when modeling
games in which timing matters
a credible threat is
in the threatener's interest to carry out
most cartels cease to be effective bc
of the incentive to cheat on the cartel agreement
a purely self interested diner is more likely to tip
only when dining in a restaurant at which he often eats
equilibrium happens in decision tree when
player 1 does safest thing to ensure money and player 2 chooses most money from there
a prisoner's dilemma is a game in which
the player's payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy
in the nash equilibrium of a prisoner's dilemma
there is unrealized opportunity for both to gain
a commitment problem exists when people cannot achieve their goals because
they cannot make credible threats or promises