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Scenario 13.9 Consider the following game: Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. Scenario 13.9 Consider the following game: Two firms are situated next to a lake, and it costs each firm $1,500 per period to use filters that avoid polluting the lake. However, each firm must use the lake's water in production, so it is also costly to have a polluted lake. The cost to each firm of dealing with water from a polluted lake is $1,000 times the number of polluting firms. -A mixed strategy equilibrium means that: A) the strategies chosen by the players represent different behaviors. B) one player has a dominant strategy, and one does not. C) one player has a pure strategy, and one does not. D) the equilibrium strategy is an assignment of probabilities to pure strategies. E) the equilibrium strategy involves alternating between a dominant strategy and a Nash strategy. -A "mixed strategy" equilibrium means that:


A) the strategies chosen by the players represent different behaviors.
B) one player has a dominant strategy, and one does not.
C) one player has a pure strategy, and one does not.
D) the equilibrium strategy is an assignment of probabilities to pure strategies.
E) the equilibrium strategy involves alternating between a dominant strategy and a Nash strategy.

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The Matching Pennies game is an example of a:


A) constant-sum game.
B) nonconstant sum game.
C) game with an equilibrium in dominant strategies.
D) none of the above

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Scenario 13.8 Consider the following game: Scenario 13.8 Consider the following game: -In game in Scenario 13.8, what will occur if IVY Corp. plays a maximin strategy? A) $1, $10 B) $1, -$5000 C) $2, $0 D) $2, $2 E) There is a .25 chance of each outcome in that case. -In game in Scenario 13.8, what will occur if IVY Corp. plays a maximin strategy?


A) $1, $10
B) $1, -$5000
C) $2, $0
D) $2, $2
E) There is a .25 chance of each outcome in that case.

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Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: Consider the following game in which two firms decide how much of a homogeneous good to produce. The annual profit payoffs for each firm are stated in the cell of the game matrix, and Firm A's payoffs appear first in the payoff pairs: What is the Nash equilibrium for this game? A) Both firms producer low levels of output. B) Both firms produce high levels of output. C) Firm A produces low levels of output, and Firm B produces high output. D) Firm A produces high levels of output, and Firm B produces low output. E) There is more than one Nash equilibrium for this game. What is the Nash equilibrium for this game?


A) Both firms producer low levels of output.
B) Both firms produce high levels of output.
C) Firm A produces low levels of output, and Firm B produces high output.
D) Firm A produces high levels of output, and Firm B produces low output.
E) There is more than one Nash equilibrium for this game.

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Two firms in a local market compete in the manufacture of cyberwidgets. Each firm must decide if they will offer a warranty or not. The payoffs of each firm's strategy are a function of their competitor as well. The payoff matrix is presented below. Two firms in a local market compete in the manufacture of cyberwidgets. Each firm must decide if they will offer a warranty or not. The payoffs of each firm's strategy are a function of their competitor as well. The payoff matrix is presented below. If firm #1 announces it will offer a warranty regardless of what firm #2 does, is this a credible threat? Why or why not? If firm #1 announces it will offer a warranty regardless of what firm #2 does, is this a credible threat? Why or why not?

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Both firms offering a warranty and both ...

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To deter a potential entrant, an existing firm in a market may threaten to sharply increase production so that the entrant will be left with a small share of the market. This may be a credible threat if:


A) production exhibits economies of scale.
B) production exhibits diseconomies of scale.
C) production costs may fall due to learning-by-doing.
D) A and C are correct.
E) B and C are correct.

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Scenario 13.10 Consider the game below: Scenario 13.10 Consider the game below: -What is true about dominant strategies in the game in Scenario 13.10? A) Use more caffeine and have a sweepstakes are dominant strategies. B) Use more caffeine and create a diet soda are dominant strategies. C) Make animal-shaped bottles and have a sweepstakes are dominant strategies. D) Make animal-shaped bottles and create a diet soda are dominant strategies. E) There are no dominant strategies. -What is true about dominant strategies in the game in Scenario 13.10?


A) "Use more caffeine" and "have a sweepstakes" are dominant strategies.
B) "Use more caffeine" and "create a diet soda" are dominant strategies.
C) "Make animal-shaped bottles" and "have a sweepstakes" are dominant strategies.
D) "Make animal-shaped bottles" and "create a diet soda" are dominant strategies.
E) There are no dominant strategies.

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What is the dominant strategy for bidders in an English oral auction?


A) Keep bidding until all other bidders quit, regardless of your reservation price.
B) Bid until the previous bid price equals the reservation price of the last bidder.
C) Bid until the first-price and second-price bids are equal.
D) Stop bidding once the price exceeds your reservation price.

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Scenario 13.8 Consider the following game: Scenario 13.8 Consider the following game: -In game in Scenario 13.8, A) Y is a dominant strategy for IVY Corp. B) Z is a dominant strategy for IVY Corp. C) A is a dominant strategy for SAC Group. D) B is a dominant strategy for SAC Group. E) No firm has a dominant strategy. -In game in Scenario 13.8,


A) Y is a dominant strategy for IVY Corp.
B) Z is a dominant strategy for IVY Corp.
C) A is a dominant strategy for SAC Group.
D) B is a dominant strategy for SAC Group.
E) No firm has a dominant strategy.

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Scenario 13.16 Consider the pricing game below: Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If Gooi can move first, and Ici wants to realize the ($150, $300) payoff, A) all it has to do is threaten to buy yogurt machines, no matter what Gooi does. B) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $50. C) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $150. D) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $300. E) it has to move before Gooi; there is no other way. -Refer to Scenario 13.16. If Gooi can move first, and Ici wants to realize the ($150, $300) payoff,


A) all it has to do is threaten to buy yogurt machines, no matter what Gooi does.
B) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $50.
C) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $150.
D) it could make its threat credible by rearranging its physical plant so that the installation of gelato machines by Gooi would bring in profit less than $300.
E) it has to move before Gooi; there is no other way.

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Scenario 13.11 Consider the game below: Scenario 13.11 Consider the game below: -What is true about dominant strategies in the game in Scenario 13.11? A) R1 and C1 are dominant strategies. B) R1 and C2 are dominant strategies. C) R2 and C1 are dominant strategies. D) R2 and C2 are dominant strategies. E) There are no dominant strategies. -What is true about dominant strategies in the game in Scenario 13.11?


A) R1 and C1 are dominant strategies.
B) R1 and C2 are dominant strategies.
C) R2 and C1 are dominant strategies.
D) R2 and C2 are dominant strategies.
E) There are no dominant strategies.

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An oligopolistic situation involving the possible creation of barriers to entry would probably best be modeled by a:


A) cooperative game.
B) Prisoners' Dilemma game.
C) Battle of the Sexes game.
D) repeated game.
E) sequential game.

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Scenario 13.14 Consider the game below: Scenario 13.14 Consider the game below: -The game in Scenario 13.14: A) is Stackelberg if both players move at the same time; Cournot if one player moves first. B) is Cournot if both players move at the same time; Stackelberg if one player moves first. C) is Stackelberg no matter what the timing of moves. D) is Cournot no matter what the timing of moves. E) is neither Stackelberg nor Cournot. -The game in Scenario 13.14:


A) is Stackelberg if both players move at the same time; Cournot if one player moves first.
B) is Cournot if both players move at the same time; Stackelberg if one player moves first.
C) is Stackelberg no matter what the timing of moves.
D) is Cournot no matter what the timing of moves.
E) is neither Stackelberg nor Cournot.

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Andre Agassi, a star tennis player, is playing the number one player in the world, Roger Federer. Before the match, Agassi decided that he would serve 20 percent of his serves to Federer's backhand, 30 percent of his serves to Federer's forehand, and 50 percent of his serves straight at Federer. In the language of game theory, this is known as:


A) a pure strategy.
B) a dominant strategy.
C) a mixed strategy.
D) a maximin strategy.

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Once the state environmental protection agency devises its new policy to protect the environment, firms decide whether to remain in the state or move their operations to a neighboring state. In the language of game theory, this is an example of:


A) a cooperative game.
B) a sequential game.
C) a threat.
D) the Prisoners' Dilemma.

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If, in the game in Scenario 13.14, R moves first, it will select:


A) Q = 50.
B) Q = 100.
C) Q = 150.
D) a mixed strategy over the three choices that includes some positive likelihood for each Q.
E) a mixed strategy over the choices Q = 50 and Q = 100.

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In the spring of 1994, Northwest Airlines took the independent action of reducing fares on its flights. Other competing airlines quickly matched the fare cuts. These actions might be interpreted as:


A) a noncooperative game.
B) a cooperative game.
C) a constant sum game.
D) a competitive game.

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Scenario 13.16 Consider the pricing game below: Scenario 13.16 Consider the pricing game below: -Refer to Scenario 13.16. If the firms must choose their prices simultaneously, A) both firms will buy gelato. B) both firms will buy yogurt. C) two pure strategy equilibria exist, one in which Gooi alone buys a gelato machine and one in which Ici alone buys a gelato machine. D) the game has no pure strategy equilibrium. E) the game has no mixed strategy equilibrium. -Refer to Scenario 13.16. If the firms must choose their prices simultaneously,


A) both firms will buy gelato.
B) both firms will buy yogurt.
C) two pure strategy equilibria exist, one in which Gooi alone buys a gelato machine and one in which Ici alone buys a gelato machine.
D) the game has no pure strategy equilibrium.
E) the game has no mixed strategy equilibrium.

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Consider the Battle of the Sexes game: Consider the Battle of the Sexes game: Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case? A) Yes, both players select wrestling. B) Yes, both players select opera. C) No, both players face the minimum payoff (0) under both actions. D) We do not have enough information to answer this question. Suppose both players use maximin strategies for this game. Is there a clear equilibrium outcome to the game in this case?


A) Yes, both players select wrestling.
B) Yes, both players select opera.
C) No, both players face the minimum payoff (0) under both actions.
D) We do not have enough information to answer this question.

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Scenario 13.4 Consider the following game: Scenario 13.4 Consider the following game: -In the game in Scenario 13.4, the equilibrium outcome: A) is for both NRG and Vita to sponsor the marathon. B) is for both NRG and Vita to sponsor the TV show. C) is for NRG to sponsor the marathon and Vita to sponsor the TV show. D) is for NRG to sponsor the TV show and Vita to sponsor the marathon. E) does not exist in pure strategies. -In the game in Scenario 13.4, the equilibrium outcome:


A) is for both NRG and Vita to sponsor the marathon.
B) is for both NRG and Vita to sponsor the TV show.
C) is for NRG to sponsor the marathon and Vita to sponsor the TV show.
D) is for NRG to sponsor the TV show and Vita to sponsor the marathon.
E) does not exist in pure strategies.

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