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Game Theory

1.A strategy describes

a. a complete specification of what a player will do under each contingency of playing the game.
b. a single move that a player makes in the process of competing with a rival.
c. the payoff that a player will receive only when there is a single possible outcome.
d. the move made by a rival in a tit-for-tat game.
e. the solution to the prisoner's dilemma game.

2.By definition, a Nash equilibrium in a duopoly is the situation in which each player

a. plays a dominant strategy.
b. plays the best strategy given the other's strategies.
c. gets the highest possible payoff.
d. gets the highest payoff possible without lowering the opponent's payoff.
e. is happy with the outcome.

3.Which pair of strategies would competing firms A and B choose given this payoff matrix?

B's Strategies
A's Strategies Y X
W (A gets -2, B gets 2) (A gets 1, B gets 1)
X (A gets 0, B gets 0) (A gets 3, B gets -6)

a. W, Y
b. W, Z
c. X, Y
d. X, Z
e. Either X, Y or W, Z

4.How many Nash equilibria are there in this payoff matrix?

B's Strategies
A's Strategies Enter Don't Enter
Raise price (A gets 6, B gets 4) (A gets 10, B gets 8)
Lower price (A gets 8, B gets 6) (A gets 3, B gets 5)

a. 0
b. 1
c. 2
d. 3
e. 4

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