True/False
Indicate whether the statement is true or false.
Answer A for True and B for False.
Each correct answer is worth 2 points.
1.
A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligo
polist.
2.
If a game does not have an equilibrium in pure strategies, then it will not have an equilibrium in mixed
strategies either.
3.
In a Nash equilibrium, everyone must be playing a dominant strategy.
4.
A game has two players and each has two strategies. The strategies are Be Nice and Be Mean. If both players
play Be Nice, both get a payoff of 5. If both players play Be Mean, both get a payoff of 23. If one player plays
Be Nice and the other plays Be Mean, the player who played Be Nice gets 0 and the player who played Be
Mean gets 10. Playing Be Mean is a dominant strategy for both players.
5.
A general has the two possible pure strategies, sending all of his troops by land or sending all of his troops by
sea. An example of a mixed strategy is where he sends
of his troops by land and
of his troops by sea.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Each correct answer is worth 5 points.
6.
There are two major producers of corncob pipes in the world, both located in Herman, Missouri. Suppose that
the inverse demand function for corncob pipes is described by
p
= 160 – 4
q
, where
q
is total industry output,
and marginal costs are zero. What is the Cournot reaction function of firm 1 to the output,
q
2
, of firm 2?
a.
40 – 4
q
2
b.
160 – 4
q
2
2
c.
20 – .5
q
2
d.
160 – 4
q
2
e.
164 – 8
q
2
7.
Ann and Bruce each own a pizza store in Frostbite Falls, Minnesota. Demand for pizza is given by
Q
= 200 –
10
P
. Having the only two pizza stores in Frostbite Falls, they attempt to profitably split the market without vi
olating the Sherman Antitrust Act. Each has the cost function
C
= 50 + 5
Q
. If Ann and Bruce behave as duo
polists, each earns a profit of
a.
$0.
b.
$200.
c.
$500.
d.
$500.
e.
$562.50.
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In the town of Torrelodones, each of the
N
> 2 inhabitants has $100. They are told that they can all voluntarily
contribute to a fund that will be evenly divided among all residents. If $
F
are contributed to the fund, the local
KMart will match the private contributions so that the total amount to be divided is $2F. That is, each resid
ent will get back a payment of $
when the fund is divided. If the people in town care only about their
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 Spring '08
 Lim
 Game Theory, Supply And Demand, little pig, Professor Binmore

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