Assignment:
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Right Left
A Up (2, 2) (3, 1)
Down (1, 3) (0, 0)
____ 1. Refer to Table 17-14. If player A chooses his/her best strategy, player B should
a. choose right and earn a payoff of 2.
b. choose right and earn a payoff of 3.
c. choose left and earn a payoff of 1.
d. choose left and earn a payoff of 0.
____ 2. Refer to Table 17-14. If both players choose their best strategies, player A will earn a payoff of
a. 0.
b. 1.
c. 2.
d. 3.
____ 3. Refer to Table 17-14. Which of the following statements about this game is true?
a. Up is a dominant strategy for A and Right is a dominant strategy for B.
b. Up is a dominant strategy for A and Left is a dominant strategy for B.
c. Down is a dominant strategy for A and Right is a dominant strategy for B.
d. Down is a dominant strategy for A and Left is a dominant strategy for B.
____ 4. Refer to Table 17-14. Which outcome is the Nash equilibrium in this game?
a. Up-Right
b. Up-Left
c. Down-Right
d. Down-Left
____ 5. In general, game theory is the study of
a. how people behave in strategic situations.
b. how people behave when the possible actions of other people are irrelevant.
c. oligopolistic markets.
d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.
____ 6. Game theory is important for understanding which of the following market types?
a. perfectly competitive and oligopolistic markets
b. perfectly competitive markets but not oligopolistic markets
c. oligoplistic but not perfectly competitive markets
d. neither oligopolistic nor perfectly competitive markets.
1.) Does a firm make use of comparative advantage in allocating its resources? What factors give a firm a comparative advantage?
2.) What is the best practices frontier? How does this relate to competitive advantage?
3.) Explain how a strategy of increasing expenditures on advertising could deter market entry.
4.) Explain the difference between perfect competition, monopoly, monopolistic competition, and oligopoly.
5.) Why would a firm want to deter entry? How much would a monopolist spend to keep other firms out of its market?
1.) Suppose you are the owner-operator of a gas station in a small town. Over the past 20 years, you and your rival have successfully kept prices at a very high level. You recently learned that your rival is retiring and closing his station in two weeks. What should you do today?
2.) In a situation that occurs only once, if you advertise and your rival advertises, you will each earn $5 million in profits. If neither of you advertises, your rival will make $4 million and you will make $2 million. If you advertise and your rival does not, you will make 10 million and your rival will make $3 million. If your rival advertises and you do not, you will make $1 million and your rival will make $3 million. ANSWER A-E: Full details.
a.) Set up the situation in a normal form.
b.) Do you have a strategy that you will choose no matter what your rival does?
c.) Is there a strategy your rival will choose no matter what you do?
d.) What is the solution or equilibrium?
e.) How much would you be willing to pay your rival not to advertise?
3.) You and your rival must simultaneously decide what price to advertise in the weekly newspaper. If you each charge a low price, you each earn zero profits. If you each charge a high price, you each earn profits of $3. If you charge different prices, the one charging the higher prices, loses $5 and the one charging the lower price makes $5. ANSWER A and B: Full Details:
a.) Find the equilibrium when there are no repeated transactions.
b.) Now suppose there are repeated transactions. If the interest rate is 10 percent, what will be the outcome?
1.) Define entrepreneurship. How does it differ from management? Would you consider each of the following entrepreneurial or managerial? ANSWER A-F; Full Details:
a.) Bill Gate's creation of Microsoft operating system.
b.) Steve job's development of the iPhone.
c.) Warren Buffet's investment success.
d.) Wal-Mart's strategy to locate in small towns.
e.) The use of terms and a flat company rather than a hierarchy.
f.) Newt Gringrich's 1994 "Contract for America".
2.) What is the "market " process? Describe the role of the entrepreneur in the market process.
3.) What is the economist's interpretation of costs? "........the concept of cost is far richer (pardon the pun) than the dollars and cents you hand over the cash register."
4.) In the chapter rent seeking associated with entrepreneurs dealing with or in government. Can rent seeking occur inside a firm? Explain and give an example.
5.) Explain why first mover is or is not a good strategy for an entrepreneur.