11) A Nash equilibrium in the duopoly game
A) means that one player has greater market power.
B) occurs when each player takes the best possible action regardless of the strategy chosen by other firms.
C) will always lead to equilibrium in which the firms’ total profit is the largest.
D) can occur only if firms cooperate with each other.
E) means that a firm must be able to determine its actions and the actions of its competitor.
12) The prisoners’ dilemma is an example of
A) product differentiation.
B) collusion.
C) game theory.
D) monopolistic competition.
E) decision making in a monopoly.
13) The prisoners’ dilemma is
A) an example of a duopoly game.
B) a theory about why firms break the law.
C) competition that can occur among firms in monopolistic competition.
D) an example of the monopolist charging high prices.
E) an example of a game that does not have a Nash equilibrium.
14) In the prisoners’ dilemma, each player is ________ regardless of the other player’s actions.
A) forced to confess
B) forced to deny
C) better off confessing
D) better off denying
E) going to go free
15) The equilibrium in the prisoners’ dilemma
i.minimizes the prisoners’ combined jail time.
ii.has one prisoner confessing and the other denying.
iii.is a Nash equilibrium.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
16) In a prisoners’ dilemma game, in the Nash equilibrium
A) neither player gets his or her best outcome.
B) both players get their best outcome.
C) one player gets his or her best outcome and the other player does not.
D) collusion would not alter the outcome.
E) Either answer A or C might be correct depending on whether the players communicate with each other or do not communicate with each other.
17) The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is that Bonnie ________ and Clyde ________.
A) confesses; denies
B) confesses; confesses
C) denies; denies
D) denies; confesses
E) denies; either confess or denies, either outcome is consistent with the Nash equilibrium.
18) The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is
A) Bonnie confesses only if she thinks Clyde denies committing the crime.
B) Clyde confesses only if he thinks Bonnie denies committing the crime.
C) both Bonnie and Clyde confess to the crime.
D) both Bonnie and Clyde deny committing the crime.
E) Clyde confesses and Bonnie might either confess or not confess, either outcome is consistent with the Nash equilibrium.
19) The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Which of the following statements correctly describes the equilibrium choices made by Bonnie and Clyde?
A) The Nash equilibrium is the best outcome for Bonnie and Clyde.
B) There is no equilibrium in this game.
C) In the Nash equilibrium, both Bonnie and Clyde deny committing the crime.
D) Bonnie and Clyde could improve upon the Nash equilibrium if they could communicate.
E) Bonnie and Clyde get the best outcome for themselves because they are not allowed to communicate.
20) The prisoners’ dilemma is similar to the problem faced by firms in an oligopoly in the United States because
A) mutual interdependence exists, and collusion is illegal in the United States, so the firms cannot legally communicate.
B) collusion is legal in the United States, and firms can communicate their pricing decisions to each other.
C) failure to cooperate leads to better outcomes than cooperation.
D) private prisons are run by oligopolies.
E) the firms can communicate but mutual interdependence exists.
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