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Chapter 10: Test Bank Multiple Choice Questions 1. Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is a) For each firm to advertise. b) For neither firm to advertise. c) For your firm to advertise and the other not to advertise. d) None of the above. Answer: A Difficulty: Med 2. Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to be in business for 10 years, then the Nash equilibrium is a) For each firm to advertise every year. b) For neither firm to advertise in early years, but to advertise in later years. c) For each firm to not advertise in any year. d) For each firm to advertise in early years, but not advertise in later years. Answer: A Difficulty: Med 3. Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non advertising firm will earn $1 million. If you and your rival plan to hand your business down to your children (and this "bequest" goes on forever) then a Nash equilibrium when the interest rate is zero is a) for each firm to not advertise until the rival does, and then to advertise forever. b) for your firm to never advertise. c) for your firm to always advertise when your rival does. d) for each firm to advertise until the rival does not advertise, and then not advertise forever. Answer: A Difficulty: Med Managerial Economics and Business Strategy, 5e Page 1 4. If you advertise and your rival advertises, you each will earn $4 million in profits. If neither of you advertise, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $1 million and the non advertising firm will earn $5 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is a) For each firm to advertise.... View Full Document

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