Question : 11.6   Using Game Theory to Analyze Oligopoly 1) The study of : 1244659

11.6   Using Game Theory to Analyze Oligopoly

1) The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

A) Nash equilibrium.

B) the prisoner’s dilemma.

C) game theory.

D) dominant strategy equilibrium.

2) Which of the following economists did not help to develop game theory analysis?

A) Adam Smith

B) John Nash

C) John von Neumann

D) Oskar Morgenstern

3) A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

A) a business strategy.

B) a payoff matrix.

C) the Porter’s Competitive Forces plan.

D) game theory.

4) All of the following are characteristics of game theory except

A) rules that determine what actions are allowable.

B) payoffs that are the results of the interaction among players’ strategies.

C) strategies that players employ to attain their objectives.

D) independence among players.

5) A market comprised of only two firms is called a

A) competitive market.

B) duopoly.

C) monopoly.

D) monopolistically competitive market.

6) Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show

A) the profit that each producer can expect to earn by pursuing a single strategy.

B) the profit that each producer can expect to earn from every combination of strategies by the firms in the market.

C) the strategy that a firm must pursue to earn various levels of profit.

D) the expected profits of rival firms.

7) A dominant strategy

A) is one that is the best for a firm, no matter what strategies other firms use.

B) is one that a firm is forced into following by government policy.

C) involves colluding with rivals to maximize joint profits.

D) involves deciding what to do after all rivals have chosen their own strategies.

8) A Nash equilibrium is

A) reached when an oligopoly’s market demand and supply intersect.

B) reached when each player chooses the best strategy for himself and for the group.

C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.

D) an equilibrium comprising non-dominant strategies only.

9) Collusion between two firms occurs when

A) the firms independently pursue strategies that could hurt each other.

B) firms explicitly or implicitly agree to adopt a uniform business strategy.

C) announce that each will match its rival’s market price.

D) firms act altruistically to bring about the economically efficient outcome.

10) What is a prisoner’s dilemma?

A) a game that involves no dominant strategies

B) a game in which prisoners are stumped because they cannot communicate with each other

C) a game in which players act in rational, self-interested ways that leave everyone worse off

D) a game in which players collude to outfox authorities

Table 11-6

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 11-6 shows the payoff matrix for this advertising game.