Chapter 6: Game Theory

A common assumption about the players in a game is that
1. neither player knows the payoff matrix.
2. the players have different information about the payoff matrix.
3. only one of the players pursues a rational strategy.
4. the specific identity of the players is irrelevant to the play of the game.
In a zero-sum game,
1. what one player wins, the other loses.
2. the sum of each player’s winnings if the game is played many times must be zero.
3. the game is fair—each person has an equal chance of winning.
4. long-run profits must be zero.
The Prisoners’ Dilemma is not a constant sum game because
1. some outcomes are better than others for both players.
2. the prisoners’ sentences are necessarily non-zero.
3. the game does not have a Nash equilibrium.
4. the sum of the prisoners’ sentences in non-zero.
The twin non-confess strategy choice in the Prisoners’ Dilemma can be described as
1. non-Pareto optimal and unstable.
2. Pareto optimal and unstable.
3. non-Pareto optimal and stable.
4. Pareto optimal and stable.
The Nash equilibrium in a Bertrand game of price setting where all firms have the same marginal cost is
1. efficient because all mutually beneficial transactions will occur.
2. efficient because of the free entry assumption.
3. inefficient because some mutually beneficial transactions will be foregone.
4. inefficient because of the uncertainties inherent in the game.
The Nash equilibrium is a Bertrand game of price setting where firms have different marginal cost is
1. efficient because all mutually beneficial transactions will occur.
2. efficient because of the free entry assumption.
3. inefficient because some mutually beneficial transactions will be foregone.
4. inefficient because of the uncertainties inherent in the game.
The Nash equilibrium in a Bertrand price setting game in which firms first choose output capacities resembles the equilibrium in
1. the competitive model.
2. the Cournot model.
3. the cartel model.
4. the price leadership model.
A price leader in the Stackelberg model is assumed to know
1. the market demand curve.
2. its own cost function.
3. its rival’s reaction function.
4. all of the above.
A subgame perfect equilibrium is a Nash equilibrium that
1. cannot persist through several periods.
2. involves only credible threats.
3. consists only of dominant strategies.
4. is unique.
A cartel-like collusive solution can be a Nash equilibrium only in games with
1. infinite replications.
2. finite replications.
3. dominant strategies.
4. more than two players.

Chapter 6: Game Theory

Multiple Choice Questions