Microeconomics Practice Test - 12: Game Theory and Oligopolistic Behavior

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  1. Game theory

    1. examines the choice of optimal strategies in conflict situations

    2. seeks to predict the behavior of players

    3. can be used to analyze oligopolistic interdependence

    4. all of the above

  2. A dominant strategy refers to the strategy that a player in a game chooses

    1. independently of the strategy of the other player

    2. given the strategy of the other player

    3. in Nash equilibrium

    4. in a cartel

  3. Which of the following statements is correct?

    1. a dominant strategy equilibrium is always a Nash equilibrium

    2. a dominant strategy equilibrium can be a Nash equilibrium

    3. a Nash equilibrium is also a dominant strategy equilibrium

    4. a Nash equilibrium cannot be a dominant strategy equilibrium

  4. All games always have

    1. a single dominant strategy

    2. multiple dominant strategies

    3. a single Nash equilibrium

    4. none of the above

  5. In a prisoners’ dilemma

    1. each player has a dominant strategy

    2. the players are not in Nash equilibrium

    3. the players cannot do better by cooperating

    4. none of the above

  6. The prisoners’ dilemma can be used to analyze

    1. price competition

    2. advertising expenditures by rival firms

    3. product style changes

    4. all of the above

  7. For a prisoners’ dilemma to occur it is sufficient

    1. for each player to have a dominant strategy

    2. for both players to be in Nash equilibrium

    3. for each player to adopt its dominant strategy but to be able to do better by cooperation

    4. all of the above

  8. One disadvantage of the analysis of the prisoners’ dilemma is that it

    1. refers to a one-move game only

    2. does not lead the players to maximize gains

    3. only applies to economics

    4. cannot be overcome by cooperation

  9. The best strategy for repeated prisoners’ dilemma games is

    1. tit-for-tat

    2. the dominant strategy

    3. the Nash equilibrium

    4. the Cournot solution

  10. Tit-for-tat refers to the game theory rule that

    1. you should cooperate as long as your rival cooperates

    2. you should not cooperate when your rival does not cooperate

    3. is best to follow in repeated games

    4. all of the above

  11. The following condition is required for tit-for-tat to be the best strategy in repeated prisoners’ dilemma games:

    1. there must be a reasonably stable set of players, preferably two

    2. each firm must be able to quickly detect cheating by other firms

    3. demand and cost conditions must be relatively stable

    4. the number of moves must be infinite, or at least a very large and uncertain
    5. all of the above

  12. A strategic move refers to all the following except

    1. a Nash equilibrium

    2. making a credible threat

    3. adopting policies to deter entrance into the market

    4. making a preventive investment

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