Question : 49) Economists use game theory to analyze oligopolies because A) real : 1387872

49) Economists use game theory to analyze oligopolies because

A) real markets are too complicated to analyze without using games.

B) it is more enjoyable for economists and students to learn by playing games.

C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies.

D) game theory is useful in understanding the actions of firms that are price takers.

50) In game theory, the three key characteristics of a game are

A) rules, strategies, and payoffs.

B) rules, regulations, and payoffs.

C) winners, losers, and rules.

D) risks, rewards, and penalties.

51) All games share three characteristics. Two of these characteristics are rule and strategies. What is the third characteristic called?

A) competition

B) collusion

C) results

D) payoffs

Table 14-4

Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game.

52) Refer to Table 14-4.  If Alistair assumes that Baine would increase its advertising budget, what should it do?

A) Alistair should keep its own budget the same and allow Baine to incur the higher cost.

B) Alistair should also increase its advertising spending.

C) Alistair should reduce its advertising spending.

D) Being a duopolist, Alistair is not affected by Baine’s choices because it has a secure 50 percent market share.

53) Refer to Table 14-4.  Does Alistair have a dominant strategy and if so, what is it?

A) Yes, Alistair should increase its advertising budget.

B) Yes, Alistair should keep its advertising budget as is.

C) There are two dominant strategies: If Baine increases its advertising budget, then Alistair’s best bet is to keep its budget the same, but if Baine does not increase its spending, then Alistair should raise its advertising budget.

D) No, there is no dominant strategy.

54) Refer to Table 14-4. Does Baine have a dominant strategy and if so, what is it?

A) Yes, Baine should increase its advertising budget.

B) Yes, Baine should keep its advertising budget as is.

C) There are two dominant strategies: If Alistair increases its advertising budget, then Baine’s best bet is to keep its budget the same, but if Alistair does not increase its spending, then Baine should raise its advertising budget.

D) No, there is no dominant strategy.

55) Refer to Table 14-4.  What is the Nash equilibrium in this game?

A) There is no Nash equilibrium.

B) Baine increases its advertising budget, but Alistair does not.

C) Alistair increases its advertising budget, but Baine does not.

D) Both Alistair and Baine increase their advertising budgets.

56) Refer to Table 14-4.  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.

57) 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.

58) 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) payoff matrix.