51) Refer to Table 11-9. How are the firms in this advertising game caught in a prisoner’s dilemma?
A) They are not in a prisoner’s dilemma because there is one clear strategy for each.
B) They would be more profitable if they refrained from advertising but each fears that if it does not advertise, it will lose customers.
C) Since each firm is uncertain about the other’s behavior, each will adopt a wait-and-see attitude which results in no increase in market share and no new customers.
D) Only the first mover is caught in a prisoner’s dilemma because the second has a chance to observe and respond.
52) A set of actions that a firm takes to achieve a goal is the definition of a
A) business plan.
B) business strategy.
C) business prospectus.
D) business goal.
53) A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a
A) Nash equilibrium.
B) dominant strategy.
C) collusion.
D) pay-off matrix.
54) Collusion occurs when
A) a firm chooses a level of output to maximize its own profit.
B) two firms’ price and output decisions come into conflict.
C) there is an agreement among firms to charge the same price or otherwise not to compete.
D) firms refuse to follow their price leaders.
55) An agreement among firms to charge the same price or otherwise not to compete is called
A) a pay-off matrix.
B) a subgame-perfect equilibrium.
C) a Nash equilibrium.
D) collusion.
56) A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called
A) an earnings table.
B) a payoff table.
C) a payoff matrix.
D) a strategic matrix.
57) A dominant strategy is
A) an equilibrium where each firm chooses the best strategy, given the strategies of other firms.
B) a strategy chosen by two firms that decide to charge the same price or otherwise not to compete.
C) a strategy that is obviously the best for each firm that is a party to a business decision.
D) a strategy that is the best for a firm no matter what strategies other firms use.
58) Who won a Nobel Prize in economics for his work in the development of game theory?
A) John von Neuman
B) Oskar Morgenstern
C) John Nash
D) Howard Schultz
59) Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?
A) The firms may find that the price they charge is greater than the price that would maximize their profits.
B) An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail.
C) Consumers may resent having to pay high prices and not buy from either of the firms.
D) One of the firms may decide to lower its price and take business away from the firm that charged the high price.
60) An equilibrium in a game in which players pursue their own self-interest is called
A) a Nash equilibrium.
B) a cooperative equilibrium.
C) a noncooperative equilibrium.
D) a prisoner’s dilemma.
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