Question :
Table 11-4
Godrickporter and Star Connections the only two airport shuttle : 1266866
Table 11-4
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 11-4 shows the payoff matrix for this advertising game.
11) Refer to Table 11-4. Is there a dominant strategy for Godrickporter and if so, what is it?
A) No, its outcome depends on what Star Connections does.
B) Yes, Godrickporter should increase its advertising spending.
C) Yes, Godrickporter should reduce its advertising spending.
D) Yes, Godrickporter’s dominant strategy is to collude with Star Connections.
12) Refer to Table 11-4. Is there a dominant strategy for Star Connections and if so, what is it?
A) No, its outcome depends on what Godrickporter does.
B) Yes, Star Connections should increase its advertising spending.
C) Yes, Star Connections should reduce its advertising spending.
D) Yes, Star Connections’ dominant strategy is to collude with Godrickporter.
13) Refer to Table 11-4. Let’s suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000. Is there an incentive for any one firm to increase its advertising budget?
A) No, neither firm has an incentive to raise its advertising spending.
B) Yes, both firms have an incentive to raise their advertising budgets.
C) Yes, Star Connections has an incentive to increase its advertising budget, but Godrickporter does not.
D) Yes, Godrickporter has an incentive to increase its advertising budget, but Star Connections does not.
14) Refer to Table 11-4. What is the Nash equilibrium in this game?
A) There is no Nash equilibrium.
B) Godrickporter increases its advertising budget, but Star Connections does not.
C) Star Connections increases its advertising budget, but Godrickporter does not.
D) Both Godrickporter and Star Connections increase their advertising budgets.
15) Which of the following statements about the prisoner’s dilemma is false?
A) The prisoner’s dilemma in a one-shot game leads to a noncooperative, equilibrium outcome.
B) The prisoner’s dilemma in repeated games could lead to cooperation especially if there is some enforcement mechanism that punishes a player who does not cooperate.
C) Players caught in a prisoner’s dilemma act in selfish ways that lead to an equilibrium that is sub-optimal.
D) The prisoner’s dilemma game can never reach a Nash equilibrium as long as players do not cooperate.
16) Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner’s dilemma?
A) producing more of its product
B) advertising that it will match its rival’s price
C) reneging on a previous tacit agreement with rival firms to charge identical high prices
D) ignoring the pricing decisions of the other firms
17) Consider two oligopolistic industries selling the same product in different locations. In the first industry, firms always match price changes by any other firm in the industry. In the second industry, firms always ignore price changes by any other firm. which of the following statements is true about these two industries, holding everything else constant?
A) Market prices are likely to be higher in the first industry in which firms always match price changes by rival firms than in the second where firms ignore their rivals’ price changes.
B) Market prices are likely to be lower in the first industry where firms always match price changes by rival firms than in the second where firms ignore their rivals’ price changes.
C) Market prices are likely to be the same in both markets because they are both oligopolistic markets.
D) No conclusions can be drawn about the pricing behavior under these very different firm behaviors.
18) A game in which each player adopts its dominant strategy
A) will not lead to an equilibrium.
B) must be a cooperative game.
C) could result in a Nash equilibrium.
D) can never result in a Nash equilibrium.
Table 11-5
Table 11-5 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.
19) Refer to Table 11-5. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
A) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.
B) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.
C) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.
D) Yes, the current situation is a Nash equilibrium.
20) Refer to Table 11-5. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?
A) Yes, the firms can implicitly collude and agree to charge a higher price.
B) No, there is no incentive for each firm to consider any other strategy.
C) No, any other strategy hurts consumers.
D) Yes, each firm can implicitly agree to increase output and not to deviate from a low price.
