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Multiple Choice Quiz

  1. A firm that considers the potential reactions of its competitors when it makes a decision
      a. is referred to as a price leader.
      b. is engaged in strategic behavior.
      c. is engaged in collusion.
      d. is referred to as a barometric firm.
  2. Which of the following is an example of strategic behavior?
      a. A firm builds excess capacity to discourage the entry of competitors.
      b. A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise.
      c. Firms in an industry increase advertising expenditures to avoid losing market share.
      d. All of the above are examples of strategic behavior.
  3. Which one of the following is a part of every game theory model?
      a. Players
      b. Payoffs
      c. Probabilities
      d. Strategies
  4. In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as
      a. the dominant strategy.
      b. the game-winning choice.
      c. super optimal.
      d. a gonzo selection.
  5. Which of the following circumstances in an industry will result in a Nash equilibrium?
      a. All firms have a dominant strategy and each firm chooses its dominant strategy.
      b. All firms have a dominant strategy, but only some choose to follow it.
      c. All firms have a dominant strategy, and none choose it.
      d. None of the above is correct.
  6. Which of the following describes a Nash equilibrium?
      a. A firm chooses its dominant strategy, if one exists.
      b. Every competing firm in an industry chooses a strategy that is optimal given the choices of every other firm.
      c. Market price results in neither a surplus nor a shortage.
      d. All firms in an industry are earning zero economic profits.
  7. A prisoners' dilemma is a game with all of the following characteristics except one. Which one is present in a prisoners' dilemma?
      a. Players cooperate in arriving at their strategies.
      b. Both players have a dominant strategy.
      c. Both players would be better off if neither chose their dominant strategy.
      d. The payoff from a strategy depends on the choice made by the other player.
  8. Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?
      a. A law that prevents a cartel from enforcing rules against cheating.
      b. A law that makes it illegal for oligopolists to engage in collusion.
      c. A law that prohibits firms in an industry from advertising their services.
      d. All of the above would be likely to solve a prisoners' dilemma for the firms.
  9. Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners' dilemma applies to this situation, then the presence of this restriction would be likely to
      a. increase profits earned by individuals in these professions.
      b. reduce profits earned by individuals in these professions.
      c. have no effect on the profits earned by individuals in these professions.
      d. increase the profits of some and reduce the profits of other individuals in these professions.
  10. Which one of the following conditions is required for the success of a tit-for-tat strategy?
      a. Demand and cost conditions must change frequently and unpredictably.
      b. The number of oligopolists in the industry must be relatively small.
      c. The game can be repeated only a small number of times.
      d. Firms must be unable to detect the behavior of their competitors.
  11. An oligopolist may engage in short-run behavior that results in lower profits if
      a. it leads to a Nash equilibrium.
      b. it is a dominant strategy.
      c. it is not involved in a repeated game.
      d. it lends credibility to the firm's threats.
  12. A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to
      a. minimize its average cost of production.
      b. establish a credible deterrent to the entry of competing firms.
      c. take advantage of a dominant strategy in a prisoners' dilemma.
      d. attain a Nash equilibrium and avoid repeated games.
  13. Game theory is concerned with
      a. predicting the results of bets placed on games like roulette.
      b. the choice of an optimal strategy in conflict situations.
      c. utility maximization by firms in perfectly competitive markets.
      d. the migration patterns of caribou in Alaska.
  14. Which of the following is an example of a game theory strategy?
      a. You scratch my back and I’ll scratch yours.
      b. If the shoe fits, wear it.
      c. Monkey see, monkey do.
      d. None of the above.
  15. In game theory, a situation in which one firm can gain only what another firm loses is called a
      a. nonzero-sum game.
      b. prisoners’ dilemma.
      c. zero-sum game.
      d. cartel temptation.
  16. Which of the following is a nonzero-sum game?
      a. Prisoners’ dilemma
      b. Chess
      c. Competition among duopolists when market share is the payoff
      d. All of the above.
  17. Which of the following is a zero-sum game?
      a. Prisoners’ dilemma
      b. Chess
      c. A cartel member’s decision regarding whether or not to cheat
      d. All of the above.
  18. A plan of action that considers the reactions of rivals is an example of
      a. accounting liability.
      b. strategic behavior.
      c. accommodating behavior.
      d. risk management.
  19. In game theory, the outcome or consequence of a strategy is referred to as the
      a. payoff.
      b. penalty.
      c. reward.
      d. end-game strategy.
  20. A strategy that is best regardless of what rival players do is called
      a. first-mover advantage.
      b. a Nash equilibrium strategy.
      c. tit-for-tat.
      d. a dominant strategy.
  21. A game that involves interrelated decisions that are made over time is a
      a. sequential game.
      b. repeated game.
      c. zero-sum game.
      d. nonzero-sum game.
  22. A game that involves multiple moves in a series of identical situations is called a
      a. sequential game.
      b. repeated game.
      c. zero-sum game.
      d. nonzero-sum game.
  23. Sequential games can be solved using
      a. tit-for-tat.
      b. dominated strategies.
      c. backward induction.
      d. risk averaging.
  24. Industrial policy
      a. is strategic behavior that takes place at the national level.
      b. may be accomplished by protecting and subsidizing selected industries.
      c. is intended to provide competitive advantage to selected firms.
      d. All of the above.
  25. A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of
      a. a prisoners’ dilemma.
      b. collusion.
      c. a credible threat.
      d. tit-for-tat.
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