Question 1

Which of the following best describes a Nash Equilibrium in a simultaneous-move game?

Accepted Answer

A situation where each player chooses a strategy that maximizes their payoff, given the strategies chosen by the other players.

Question 2

In the classic Prisoners’ Dilemma, what is the dominant strategy for each player?

Accepted Answer

To snitch, because it yields a higher payoff regardless of the other player's action.

Question 3

Which of the following outcomes in the Prisoners’ Dilemma is Pareto efficient?

Accepted Answer

Both players stay quiet.

Question 4

Suppose two firms in an oligopoly can either collude or defect. The payoff matrix is as follows: (Collude, Collude) = (10,10), (Collude, Defect) = (2,15), (Defect, Collude) = (15,2), (Defect, Defect) = (5,5). What is the Nash Equilibrium in a one-shot game?

Accepted Answer

Both firms defect.

Question 5

Which of the following statements about dominant strategies is correct?

Accepted Answer

A dominant strategy is always a best response, regardless of what the other players do.

Question 6

In the Battle of the Couple game, Maor and Tomer must independently choose between a movie and a ballet. Which concept best explains the likely outcome?

Accepted Answer

Nash Equilibrium, because each chooses their best response given the other's choice.

Question 7

Consider the following payoff matrix for two players, A and B, in a Hawk-Dove game: (Dove, Dove) = (3,3), (Dove, Hawk) = (0,6), (Hawk, Dove) = (6,0), (Hawk, Hawk) = (-2,-2). Which of the following is true?

Accepted Answer

There are two pure strategy Nash equilibria: (Hawk, Dove) and (Dove, Hawk).

Question 8

In a price duopoly with homogeneous goods and 10 buyers each willing to pay up to $5, what is the unique Nash equilibrium price set by each seller?

Accepted Answer

$0

Question 9

Which of the following best describes a mixed strategy in game theory?

Accepted Answer

A strategy in which a player randomizes over possible actions, assigning a probability to each.

Question 10

In the sequential move game shown in the game tree, what method is used to solve for the equilibrium?

Accepted Answer

Backward induction

Question 11

Which of the following is a feature of a sub-game perfect Nash equilibrium (SPNE)?

Accepted Answer

Players play a Nash equilibrium in every sub-game of the original game.

Question 12

In the context of oligopoly, what is the main reason that strategic interactions are important?

Accepted Answer

There are only a few firms, so each firm's optimal choice depends on the choices of its competitors.

Question 13

Which of the following is an example of a zero-sum game?

Accepted Answer

Rock, Paper, Scissors

Question 14

Suppose in a sequential game, Player 2 threatens to 'fight' if Player 1 enters the market, but this action would leave both players worse off. What is this threat called?

Accepted Answer

A non-credible threat

Question 15

Which of the following is true about the Bertrand Paradox?

Accepted Answer

Even with only two firms, price competition with homogeneous goods can drive prices down to marginal cost.

Question 16

If a player’s best response depends on the specific actions of the other players, but is not always the same action, what is this called?

Accepted Answer

Best response

Question 17

Which of the following is NOT a necessary assumption for a Nash Equilibrium to exist in a game?

Accepted Answer

Players must have incomplete information about the payoffs.

Question 18

In a repeated collusion game, what factor increases the likelihood that firms will sustain collusion?

Accepted Answer

Firms value future profits highly relative to current profits.

Question 19

Which of the following is an example of a barrier to entry in an oligopolistic market?

Accepted Answer

Economies of scale leading to decreasing average total cost ($$ATC)$$

Question 20

Suppose two firms are engaged in Bertrand competition with marginal cost $$MC = 0. $$What is the Nash equilibrium price?

Accepted Answer

$$p^* = 0$$

Game Theory and Oligopolistic Competition: Microeconomics Study Notes

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