ECON 202 ANSWERS
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
Which of the following best describes a Nash equilibrium?
An outcome from whichoneor both competitors can improve their position by adopting an alternative strategy.
The unstable outcome of a repeated game.
An outcome that is stable onlybecause of credible threats.
D. An outcome that both competitors see as optimal, given the strategy of their rival.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
In game theory, the credibility of a threat
A. determineswhether or not a Nash equilibrium to a game exists.
B. influences the degree of cooperation betweentwo rivals.
is relevantonly in simultaneous games.
determines whether or not a firm has a dominant strategy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
The primary advantage of displaying a game in extensiveform instead of strategicform is that extensiveform allows one to
A. display the order in which decisions are made; strategic form does not.
analyze repeatedgames; strategic form does not.
determine the existence of a Nash equilibrium; strategicform does not.
determine whether credible threats are possible;strategic form does not.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Game trees are most useful for
showing Nash equilibrium.
identifying dominant strategies.
C. mappingout sequential games.
D. determining whether a game is positive-sum, zero-sum, or negative-sum.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Which of the following terms best defines the choicesavailable to the playersof a game?
terminal nodes
backward induction
C. decision nodes
D. subgame perfect Nash equilibrium
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
137.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. How would the extensive form figure appear in strategic form?
Jumbo JavaEnterDon’t Enter Enter Corporate CoffeeJumbo:$0 CC: $0Jumbo:$0 CC: $0 Don’t enterJumbo:$8 CC: $0Jumbo: - $3CC: $2 A.
Jumbo JavaEnterDon’t Enter Enter Corporate CoffeeJumbo:$-3 CC: $0Jumbo:$0 CC: $10 Don’t enterJumbo:$8 CC: $0Jumbo : $0CC: 0 B.
Jumbo JavaEnterDon’t Enter Enter Corporate CoffeeJumbo: -$3 CC: $2Jumbo:$10 CC: $0 Don’t enterJumbo:$0 CC: $10Jumbo: $0CC $0 C.
Jumbo JavaEnterDon’t Enter Enter Corporate CoffeeJumbo:$0 CC: $0Jumbo:$10 CC: $0 Don’t enterJumbo:$0 CC: $10Jumbo: - $3CC: $2 D.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
138.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousandsper month, the profit (or loss) the firm will realize from its decision. What does this extensive form game indicate about the decisionto open a new coffee shop?
The outcome of the game is a prisoner’s dilemma.
Neither firm has a first-mover advantage.
Jumbo Java has a first-mover advantage.
D. CorporateCoffee has a first-mover advantage.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
139.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousandsper month, the profit (or loss) the firm will realize from its decision. What is the solution to this extensiveform game?
A. CorporateCoffee will open a new coffee shop in this town; Jumbo Java will not.
Jumbo Java will open a new coffee shop in this town; Corporate Coffee will not.
Both firms will open a new coffee shop in this town.
Neither firm will open a new coffee shop in this town.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
140.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousandsper month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfect information about this game, what can we conclude about the existenceof a Nash equilibrium?
There is a Nash equilibrium, but it occurs at a differentoutcome than the solution to the game.
There is no Nash equilibrium for this game.
C. The solutionto the game is a Nash equilibrium.
D. There are multiple Nash equilibriums for this game
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
141.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousandsper month, the profit (or loss) the firm will realize from its decision. Which of the following statements is true about this game?
There is no Nash equilibrium for this game.
Corporate Coffee’s entryinto the market is preemptedby Jumbo Java’s decision.
C. Jumbo Java’s entry into the market is preemptedby Corporate Coffee’sdecision.
D. The players move simultaneously in this game.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
142.
The diagram shows the extensive form versionof a strategic game betweenthe two nationallydominant coffee sellers,Corporate Coffee and Jumbo Java, both ofwhom are considering opening coffee shops in a new town. The payoffs represent, in thousandsper month, the profit (or loss) the firm will realize from its decision. Which of the following statements is true about this game?
A. It would be a Stackelberg duopoly if both firms gained from entering the new market.
It represents a Stackelberg duopoly.
It would be a Stackelberg duopoly if Jumbo Java could prevent Corporate Coffee’s entry into the market.
It would be a Stackelberg duopoly if the two firms moved simultaneously.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
The terminal nodes in an extensive form representation
are used solely to show payoffs that represent a Nash equilibrium.
represent the starting points for a sequentialgame.
indicate the strategies availableto the players of a game.
D. indicatethe possible outcomesof a game.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
Backward induction in an extensive form game
A. allows the players to alter their strategies as the game is being played.
B. is used to determine the Nash equilibrium of a game.
is used to identify the decision nodes of a repeated game.
is used primarily to establishwhether playersshould compete or cooperate.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
In a Stackelberg duopoly,
leader firms are always dominant.
no Nash equilibrium is possible.
the two firms move simultaneously.
D. one firm is the leader; the other is the follower.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
146.
Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlinesand Friendly Flyers are looking toenter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms’ decisions.The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensiveform game indicate about the decision to enter the South Podunk market?
A. Accommodating Airlines has a first-mover advantage in this game.
B. Both airlines are better off by entering this market.
Friendly Flyers has a first-mover advantage in this game.
The outcome of this game is a prisoner’s dilemma.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
147.
Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlinesand Friendly Flyers are looking toenter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms’ decisions.The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What is the solutionto this extensive form game?
AA will enter the market; FF will not.
FF will enter the market; AA will not.
Neither airlinewill enter the market.
D. Both airlines will enter the market.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
148.
Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlinesand Friendly Flyers are looking toenter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms’ decisions.The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Assuming the two firms have perfectinformation about this game, what can we conclude about the existenceof a Nash equilibrium?
A. The solutionto the game is a Nash equilibrium.
There are multipleNash equilibria for this game.
There is no Nash equilibrium for this game.
There is a Nash equilibrium for this game, but it does not coincide with the solution to the game.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
149.
Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlinesand Friendly Flyers are looking toenter that market. (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms’ decisions.The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. Which of the following statements is true about this game?
The market represented is a collusiveduopoly.
The market represented is neithera collusive duopolynora Stackelberg duopoly.
C. The market represented is a Stackelberg duopoly.
D. The outcome of the game depends on who moves first into this market.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 14-06 Utilizeadditional game-theory terminology and demonstrate how to find Nash equilibriums in both simultaneous and sequential games.
Test Bank: I Topic: Game Theory and Strategic Behavior
Type: Figure
(Consider This) The story about three sellers of Native American arts and crafts best illustrates the idea of
A. strategicbehavior.
excess capacity.
the role of advertising.
product differentiation.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Consider This) The Native American arts and crafts story illustrates the twin ideas of
product differentiation and monopolistic competition.
excess capacityand monopolistic competition.
C. local oligopolyand strategic behavior.
D. pure monopoly and price discrimination.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Consider This) The prisoner's dilemma is generally demonstrated through
A. the kinked-demand model.
B. game theory.
monopolistic competition.
a tightlyknit cartel.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-02 Discusshow game theoryrelates to oligopoly.
Test Bank: I Topic: Oligopoly Behavior: A Game-Theory Overview
(Consider This) The prisoner'sdilemma reveals that
collusive agreements will always fail.
the price leadership model does not work.
nonprice competition is more profitable than price competition.
D. sometimeswhen individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-02 Discusshow game theoryrelates to oligopoly.
Test Bank: I Topic: Oligopoly Behavior: A Game-Theory Overview
(Last Word) Which of the following statements best describes the Internet market structure?
It is highly competitive, with many providers and no firms in a dominant position.
There are a few large firms, such as Google, Facebook, and Amazon, but they each occupy their own niche and don't infringe on the others' territories.
C. There are a few large firms, such as Google, Facebook, and Amazon, each dominating a particular sector but always trying to gain market share in anothersector.
D. It comprisesfirms that have been grantedmonopolies by the governmentand are highlyregulated.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Last Word) In the Internet search market,
Yahoo, Bing, and Google have roughly equal market shares.
the Herfindahl index value is 10,000.
C. Google holds about 64 percent of the market,while Bing and Yahoo together hold about 34 percent.
D. governmentsubsidies ensure that search engines are provided at no cost to all Internetusers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Last Word) Major Internet-related firms such as Google, Apple, Amazon,Microsoft, and Facebook each have an area of the market that they dominate. Which of the following is true about their interaction in the market?
They tend to act independently, paying little attention to what the other firms do.
They collude so that each firm retains a near-monopoly in a particular sector without facing threats from the other major firms.
They behave according to a price leadership model, with each firm takinga leadership role in the particular sector it dominates.
D. They compete fiercely,as each looks for ways to increaseprofits by expandinginto rivals' markets.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Last Word) Microsoft
A. dominatesthe primary Internetmarkets.
B. is attempting to gain market share in the Internet,smartphone, and tablet markets in an effort to offset a shrinking PC market.
has colluded with AmazonandGoogle to fix online advertising prices.
holds a near-monopoly in the Internetsearch market.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
(Last Word) Whichmarket structure best characterizes the various Internet markets?
A. differentiated oligopoly
homogeneous oligopoly
monopolistic competition
pure monopoly
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Topic: Oligopoly
True / False Questions
The oligopolist's kinked-demand curve is highly elastic below and highly inelastic above the going product price.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
Mutual interdependence means that oligopolistic producers rely primarily on price competition in determining their shares of the total market for their product.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
If an oligopolist's several rivals exactly match any price changes it initiates, the demand curve will be less elasticthan if its price changes are ignored by its rivals.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
If three or four homogeneous oligopolists collude,the resulting price and production outcomes will be similar to those of pure monopoly.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
All other things equal, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
Generally speaking, oligopolistic industries producing raw materialsand semifinished goods usually offer differentiated products, while oligopolists producing consumer goods usually offer standardized products.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
Two industries that have the same four-firm concentration ratio can have significantly different Herfindahl indexes.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
As it relates to oligopoly, game theory focuses on the strategic behavior of rival firms.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-02 Discusshow game theoryrelates to oligopoly.
Test Bank: I Topic: Oligopoly Behavior: A Game-Theory Overview
The highest possiblevalue of the Herfindahlindex is 1,000.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
The U.S. breakfast cereal industry is an example of differentiated oligopoly.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
The U.S. steel industry is anexample of homogeneous oligopoly.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-01 Describethe characteristics of oligopoly.
Test Bank: I Topic: Oligopoly
Homogeneous oligopolists tend to advertisemore than do differentiated oligopolists.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-04 Contrast thepotential positiveand negative effects of advertising.
Test Bank: I Topic: Oligopoly and Advertising
Oligopolists use limit pricing to maximize short-run profits.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
Both collusive and noncollusive oligopolymodels suggest that price changes will be relativelyinfrequent in these types of industries.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
Collusion among firms always involves formal agreements.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.
Test Bank: I Topic: Three Oligopoly Models
Firms are more likely to collude when the economy is in a recession.
FA LSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty:02Medium
Learning Objective: 14-03 Explainthe three main models of oligopoly pricing and output: kinked-demand theory, collusive pricing, and price leadership.