AP Micro Game Theory

According to the payoff matrix, what will YELLOW do if white goes high?

• high

• low

The combination where Firm A advertises and Firm B does not advertise is Nash equilibrium because

• it is best for each firm given what the other firm has chosen

• the total industry profits are maximized

• Firm A has an incentive to change its strategy and chooses not to advertise

• it is the best outcome for Firm B regardless of what firm A does

• advertising is always the best strategy for Firm A

The following table shows the profits associated with the pricing strategies of two oligopolistic firms, Agronomia and Farmingdale. Each firm has two possible strategies: to charge a low price or a high price. The first entry in each cell shows the profits to Agronomia and the second the profits to Farmingdale. If the two firms do not cooperate, what will be the profit for each firm?

• Agronomia = $50; Farmingdale = $100

• Agronomia = $150; Farmingdale = $150

• Agronomia = $300; Farmindale = $50

• Agronomia = $100; Farmingdale = $100

Game theory reveals that

• each player looks after what is best for the industry.

• firms in an oligopoly are not interdependent.

• firms in an oligopoly choose their actions without regard for what other firms might do.

• the equilibrium might not be the best solution for the parties involved.

• if all firms in an oligopoly take the action that maximizes their profit, then the equilibrium will have the largest combined profit of all the firms.

In game theory, what is a Nash Equilibrium?

• A situation where no player can benefit by changing strategies while the other players keep theirs unchanged.

• A situation where all players choose the same strategy.

• A situation where one player dominates all others.

• A situation where players randomly choose their strategies.

Which of the following is a characteristic of a zero-sum game?

• The total benefit to all players in the game adds up to zero.

• All players end up with equal payoffs.

• The game has no equilibrium.

• Players cooperate to achieve the best outcome.

In the context of game theory, what does 'dominant strategy' mean?

• A strategy that is best for a player, no matter what the opponents do.

• A strategy that is only effective if all players use it.

• A strategy that is never used in equilibrium.

• A strategy that is chosen randomly.

What is the 'prisoner's dilemma' in game theory?

• A scenario where two players may not cooperate, even if it is in both their best interests.

• A situation where players always cooperate.

• A game with no equilibrium.

• A game where one player always wins.

Which of the following best describes a 'sequential game'?

• A game where players make decisions one after another.

• A game where all players make decisions simultaneously.

• A game with no clear winner.

• A game that never ends.

What is a 'payoff matrix' in game theory?

• A table that shows the payoffs for every possible action by each player.

• A chart that predicts future market trends.

• A graph showing the growth of a company.

• A list of all possible strategies.