Sample Quiz

Multiple Choice

1. Which of the following is a basic element of any game?

a. rules

b. winners

c. strategies

d. all of the above

e. none of the above

2. If a strategy yields a higher payoff no matter what other players in a game choose, it is called a(n) _________________ strategy.

a. dominant

b. dominated

c. winning

d. optimal

e. equilibrium

3. A Nash equilibrium occurs when

a. no player has an incentive to change strategies.

b. each player's strategy is the best choice, given others' strategies.

c. each player in a game has a dominant strategy.

d. not every player has a dominant strategy, in some cases.

e. all of the above

4. Suppose each player follows a dominant strategy and the result is a smaller payoff for the group as a whole. This is an example of

a. a dominated strategy.

b. a cartel.

c. the ultimate bargaining game.

d. prisoner's dilemma.

e. none of the above

5. The purpose of a cartel agreement is to

a. avoid conflict.

b. cover up illegal behavior.

c. maximize risk.

d. decrease costs

e. none of the above

6. Cartel agreements often fail because of

a. increased profits.

b. increased costs.

c. incentives to cheat.

d. the lack of a dominant strategy.

e. all of the above.

7. When timing matters in a game, it is useful to summarize the game information using a(n)

a. decision tree.

b. payoff matrix.

c. demand/marginal revenue graph.

d. Jenkins Box.

e. all of the above

Refer to the payoff matrix below for Question 8

Phillip Morris

Advertise Don't Advertise

Advertise $10 million each RJR: $35 million

Phillip Morris: $5 million

RJR

RJR: $5 million

Don't Advertise $20 million each

Phillip Morris:$10 million

8. What are the dominant strategies for Phillip Morris and RJR?

a. Advertise, Advertise

b. Don't advertise, Don't Advertise

c. Advertise, Don't Advertise

d. Don't Advertise, Advertise

e. They can not be determined.

Refer to the following decision tree for questions 9 -10.

You: $100

Them: $100

C

They choose

D You: $60

A Them: $105

You Choose

B You: $500

E Them: $400

They choose

F You: $50

Them $420

9. Which choice is dominant for you?

a. A

b. B

c. either A or B

d. neither A nor B

10. If you choose B, what choice is dominant for them?

a. E

b. F

c. either E or F

d. neither E nor F

Problems/Short Answer

1. Suppose your economics class is graded such that the average score on any exam is considered a C (i.e., average and passing). All you need to receive an A for the course is to pass the final exam. You make an agreement with your classmates to all skip the final (thus saving the cost of studying economics and giving you more time to study for other classes) so that the exam average is 0 and you all receive C's.

a. Do you decide to skip the final exam? Explain.

b. What possible problem could result if you skip the final exam?

c. What factors might affect your decision to skip the final exam (i.e., make you more or less likely to skip it)?

2. You and a competitor are each selling t-shirts with the college logo at a table on campus. You must decide whether to sell your t-shirts for $15 each or $20 each. The profit you receive will depend on how much you decide to charge and on how much your competitor decides to charge. The payoff matrix for the decision is given below.

You

$15 $20

You: 0

$15 $200 each

Competitor:$400

Your Competitor You: $400

$300 each

$20 Competitor: 0

a. If $15 and $20 are the only two price choices, what are the dominant strategies for you and your competitor?

b. Is there an equilibrium? If so, what is it?

c. If each firm knows that cutting price a little further from $15 has the same effect as cutting it from $20 to $15, what will price equal in the end? Explain