Chapter 13: Game Theory and Strategic Play

Suppose Boeing and Airbus are both considering expanding their plant capacity as a strategic move but cant observe their opponents move until their own move has been determined. The following are time-discounted values of all future profit streams in billions of dollars. Which of the following strategies are Nash equilibria? A. (Expand, Expand) B. (Expand, Don't) C. (Don't, Expand) D. B and C

A. (Expand, Expand)

Suppose Boeing and Airbus are both considering expanding their plant capacity as a strategic move but cant observe their opponents move until their own move has been determined. The following are time-discounted values of all future profit streams in billions of dollars. Which of the following strategies are Nash equilibria? A. (Expand, Expand) B. (Expand, Don't) C. (Don't, Expand) D. B and C

A. (Expand, Expand)

Rita and Mike have been caught cheating on an examination. They are taken to separate rooms for interrogation. Their payoff matrix is given below. The first outcome listed in each cell is the payoff to the row player and the second outcome listed is the payoff to the column player. Refer to the scenario above. In this game, the−−−−−−−−−strategy combination gives strictly lower payoffs than the−−−−−−−−−strategy combination. A. (confess, confess); (do not confess, do not confess) B. (confess, do not confess); (do not confess, confess) C. (do not confess, do not confess); (confess, confess) D. (do not confess, confess); (confess, do not confess)

A. (confess, confess); (do not confess, do not confess)

A Nash equilibrium occurs if−−−−−−−−−. A. each player chooses strategies that are mutual best responses B. each player chooses his or her dominant strategy C. each player chooses only a pure strategy D. each player chooses only a mixed strategy

A. each player chooses strategies that are mutual best responses

A game is called a simultaneous move game if−−−−−−−−−. A. players choose their actions at the same time. B. one player chooses her action after the other player makes a move C. players choose mixed strategies to play the game D. players choose their dominant strategies to play the game.

A. players choose their actions at the same time

he above figure shows a payoff matrix for two firms, A and B, that must choosebetween a high-price strategy and a low-price strategy. For firm A A. setting a low price is the dominant strategy B. setting a high price is the dominant strategy C. there is no dominant strategy D. doing the opposite of firm A is always the best strategy

A. setting a low price is the dominant strategy

A−−−−−−−−−is a complete plan describing how a player will act. A. strategy B. payoff C. hypothesis D. policy

A. strategy

Which of the following is true of a payoff matrix? A. It is the representation of only the best response of each player. B. It takes into account all relevant costs and benefits associated with each action of the players. C. It shows the payment made to each factor of production for the production of a good. D. It does not represent all the costs and benefits associated with the choices of the players.

B. It takes into account all relevant costs and benefits associated with each action of the players.

Which of the following is true of a Nash equilibrium? A. A game can have only one Nash equilibrium. B. No player can improve his payoff by changing his strategy once in Nash equilibrium. C. A Nash equilibrium cannot occur if each player is aware of the strategies of other players. D. A Nash equilibrium occurs if each player earns a zero payoff irrespective of the strategy he chooses.

B. No player can improve his payoff by changing his strategy once in Nash equilibrium.

Which of the following statements is true? A. In any game, the best response of a player is also her dominant strategy. B. The best response of a player is not always her dominant strategy. C. A prisoners' dilemma game is an example of a zero-sum game. D. A prisoners' dilemma game is an example of an extensive-form game.

B. The best response of a player is not always her dominant strategy.

A best response is−−−−−−−−−. A. one player's optimal action choice irrespective of the action of the other player B. one player's optimal action choice taking the other player's action as given C. an action choice that always results in a zero payoff to the opponent D. an action choice that results in equal payoffs to all the players in a game

B. one player's optimal action choice taking the other player's action as given

The below figure shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. For firm B A. setting a high price is the dominant strategy B. setting a low price is the dominant strategy C. there is no dominant strategy D. doing the opposite of firm A is always the best strategy

B. setting a low price is the dominant strategy

Rita and Mike have been caught cheating on an examination. They are taken to separate rooms for interrogation. Their payoff matrix is given below. The first outcome listed in each cell is the payoff to the row player and the second outcome listed is the payoff to the column player. This is an example of a(n)−−−−−−−−−. A. extensive-form game B. simultaneous-move game C. zero-sum game D. mixed strategy game

B. simultaneous-move game

Game theory is the study of _______________ A. policy analysis B. strategic interactions C. program evaluation D. irrational decision making

B. strategic interactions

The above figure shows the payoff matrix for two firms, A and B, selecting an advertising budget. The firms must choose between a high advertising budget and a low advertising budget. A Nash equilibrium is that A. firm A selects a high advertising budget and firm B selects a low advertising budget B. firm A selects a low advertising budget and firm B selects a high advertising budget C. both firms select a high advertising budget D. both firms select a low advertising budget

C. both firms select a high advertising budget

Which of the following is likely to use the concepts of game theory? A. Deciding on how much to spend on monthly groceries B. Exit decision of competitive firms in the long run C. International trade negotiation D. Pricing decision of a firm operating in a competitive market

C. international trade negotiation

The above figure shows the payoff matrix for two firms, A and B, selecting an advertising budget. The firms must choose between a high advertising budget and a low advertising budget. Firm B's dominant strategy A. does not exist B. is to copy firm A C. is to select a high advertising budget D. is to select a low advertising budget

C. is to select a high advertising budget

Rita and Mike have been caught cheating on an examination. They are taken to separate rooms for interrogation. Their payoff matrix is given below. The first outcome listed in each cell is the payoff to the row player and the second outcome listed is the payoff to the column player. Refer to the scenario above. What will the outcome of this game be? A. Mike will confess while Rita will not confess. B. Rita will confess while Mike will not confess. C. Neither of them will confess. D. Both of them will confess.

D. Both of them will confess.

Rita and Mike have been caught cheating on an examination. They are taken to separate rooms for interrogation. Their payoff matrix is given below. The first outcome listed in each cell is the payoff to the row player and the second outcome listed is the payoff to the column player. Refer to the scenario above. Which of the following is true? A. Mike's best response is to hold out if Rita confesses. B. Rita's best response is to hold out if she expects Mike not to confess C. Rita's best response is not to confess irrespective of what Mike does D. Mike's best response is to confess irrespective of what Rita does

D. Mike's best response is to confess irrespective of what Rita does