Question 1

In the payoff matrix shown in the first image, what is the Nash equilibrium for Player A and Player B's output choices?

Accepted Answer

Both choose 30 units of output, resulting in payoffs (6,6)

Question 2

Refer to the extensive form game tree in the second image. If Player A moves first and chooses 60, what is Player B's best response?

Accepted Answer

Player B should choose 30, resulting in payoffs (8,4)

Question 3

In the third image, which strategy combination represents the subgame perfect Nash equilibrium?

Accepted Answer

S doesn't open, T doesn't kill

Question 4

Which concept is illustrated by the payoff matrix in the first image, where both players would benefit from choosing 30 but may be tempted to choose 60?

Accepted Answer

Prisoners' dilemma

Question 5

Using backward induction in the second image, what is the optimal strategy for Player A?

Accepted Answer

Choose 60, expecting Player B to choose 30

Question 6

In the context of the third image, what makes a threat 'credible' in a sequential game?

Accepted Answer

The threat is optimal for the threatening player if challenged

Question 7

Which formula represents the Nash equilibrium condition?

Accepted Answer

$$U_i(s_i^*, s_{-i}^*) \geq U_i(s_i, s_{-i}^*)$$

Question 8

In repeated games, which strategy can sustain cooperation over time?

Accepted Answer

Tit-for-tat

Question 9

If both players in the first image choose 60 units, what economic concept does this outcome illustrate?

Accepted Answer

Dominant strategy equilibrium

Question 10

In the second image, what is the payoff for Player A if they choose 30 and Player B chooses 60?

Accepted Answer

$$4$$

Question 11

Which real-world scenario is best modeled by the prisoners' dilemma as shown in the first image?

Accepted Answer

Firms deciding whether to collude or compete in an oligopoly

Question 12

What is the main difference between static and dynamic games as illustrated by the images?

Accepted Answer

Static games involve simultaneous moves; dynamic games involve sequential moves

Question 13

In the context of the third image, what is the outcome if S opens and T does not kill?

Accepted Answer

(3,4)

Question 14

Which concept is best illustrated by the extensive form game tree in the second image?

Accepted Answer

Subgame perfect Nash equilibrium

Question 15

If a firm invests in a specialized plant that cannot be repurposed, which economic concept does this illustrate?

Accepted Answer

Sunk cost

Question 16

In the first image, what is Player B's dominant strategy?

Accepted Answer

Choose 30 units of output

Question 17

Which concept explains why firms may develop unique software command structures, as mentioned in the study materials?

Accepted Answer

Switching cost

Question 18

In the second image, if Player A chooses 30, what is Player B's best response?

Accepted Answer

Choose 30, resulting in payoffs (6,6)

Question 19

Which strategy in repeated games can punish non-cooperation and reward cooperation, as described in the study materials?

Accepted Answer

Tit-for-tat

Game Theory and Strategic Decision Making: Microeconomics Study Notes

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