Strategic Decision Making
Game theory investigates strategic decision making situations.
In a strategic decision making situation, a persons welfare depends
on not only his/her own choice but also the choices of others.
Hence a player selects his/her choi
Common Knowledge Assumption
In this class, we assume that a player is rational.
The assumption of rationality implies that given available
strategies, each player selects a strategy that gives the
highest payoff or the highest expected payoff.
Extensive form representation
Please read 7.C of MWG text (page 221)
Normal form game: simultaneous move game
Extensive form game: dynamic or sequential move
In an extensive (form) game Each player
The game in general is represe
A. Choice without Uncertainty
Throughout the class, we deal with only one specific type of decision
makers who are rational. The imposition of rationality on human behaviors
is the most important assumption we have made in the theory of e
Normal Form Representation
A normal form game is a list [I, S, u = cfw_u1 , ., uI ]
I = cfw_1, ., I: Players
Si : player is strategies
S = cfw_S1 , ., SI : the set of strategy profiles
ui : S R: pay-off function for player i
Representing an extensiv
It is natural to expect that the players play a rationalizable strategy
given that the players are rational and the common knowledge assumption is
satisfied. We have seen that sometimes the rationalizability is strong enough
to predict a
University of Windsor
Economics 110 - Introduction to Economics I
Instructor: G. Clayton
COMPLETE THE FOLLOWING IMMEDIATELY;
Student No-= _*
I. Only use pencil on the red answer form.
2. Complete the personal an
Economics 41110 : Midterm Test #2 Instructor: Clayton
Name ID it
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
E 50 " :
it? 40 CD
I? a @
10 (-9 C) 0 Demand
1000 2000 30
20) The statement "The most important goal of firms is to maximize profits"
A) has been proved by empirical testing to be always true.
(5)13 an assumption used by economists to predict the behaviour of firms.
C) is a normative statement and thus cannot be
The diagram below shows two production possibilities boundaries for Country X.
5) Refer to Figure 1-2. If Country X, constrained by the production possibilities boundary PPB], is currently
producing at point A, it can produce m
Dave's Consumer Surplus on DVD Rentals per Week
Number of DVDs Amount Dave is willing to Dave's consumer surplus
rented per week pay to rent this DVD (S) on each DVD rental if
price is $5 each
2nd 8.00 _
3rd 6.50 _
4th 5.50 _
5th 5.00 _
The table below shows various measures of output and labour productivity per hour in the short run for a
L M P AP TP
1 1o 10 10
2 _ 13 25
3 22 _ 48
4 20 17 68
5 17 17
45) The missing values in the table above for MP, AP and TP are
A) 14, 16, 84
The diagrmn below shows the market for litres of milk.
2) Refer to Figure 58. Suppose that a binding output quota is imposed on this market at quantity Q1. The loss in
economic surplus due to the quota is equal to
43) R , to Figure 52. A price floor set at $2.50 will result in
a. surplus of 10 units
:1 a shortage of 5 units.
C) surplus of 5 units.
g. shortage of 10 units.
0 change to the market outcom
ll) A demand curve for a normal good is downward sloping due to
A) the income effect.
B) the substitution effect.
(che combination of income and substitution effects.
D) neither the substitution effect nor the income effect.
E) the Giffen effect.
17) A functional relationship can be expressed in
A) a graph.
C) a numerical table.
D) mathematical equation.
G); of the above.
18) Th -' . e period to which quantity demanded refers when constructing demand curves is
specied time period.
B) a l
42) Which of the following statements about business partnerships as a form of business is not true?
A) It is generally a good idea to have a well thought out partnership agreement agreed to by the
partners before a partnership begins carrying on business
48) Which of the following statements about economic time is wrong or incorrect?
A) In the SR at least one production input is fixed in terms of the amount available.
B) Technology is fixed both in the short run and in the long run.
C) All production inpu
Theftgure below shows nfrmu'iy ofcost curvesfor nfirm. The subscripts 1, 2, and 3for the SRATC curves refer to different plant sizes.
01 Q2 Q3 Q4 05
39) Refer to Figure 8-3. The difference between the SRATC curves and the LRAC cu
UmtsofGoodX Units ofCioodY
Units ofGooch Units ofGoodY
8) Refer to Figure 62. Suppose the price of X is $2, the price of Y is $1, and the consumer's income is $10. The
26) With regard to economic decision making for firms, the short run is
A) a definite number of months.
B) a period over which the quantities of all factors of production and technology are variable.
(CD): period over which the quantity of at least one si
29) Suppose that supply for some good increases and that sim [eously the WI the same good decreases.
Th sult would be , S
decrease in Q and an indeterminate change in P. I
') a decrease in P and an indeterminate change in Q.
11 increase in Q and a decrea
10) In the current Canadian economy, the majority of choices on how resources are allocated are made by
A) consumers and firms through the price system.
B) legal contracts.
C business firms only.
various levels of government.
E negotiation between unions
38) If a producer knew his product to be an inferior good and he also knew average household income was falling, he
A close down, because inferior goods are the first to be eliminated from household budgets when income falls.
t output immediately be
25) Suppose new medical research suggests that consuming 200 grams of tofu everyday will help to prevent heart
disease. The dissemination of this research, other things being equal, is likely to have what impact on the market
A) hift the whole dema
The following table shows the marginal products of capital (K) and labour (Ufor various methods for Firm ABC to produce 1000 toys per
Production Method MPK MP1.
A 50 4
B 45 8
C 40 12
D 35 16
E 30 20
F 25 24
G 20 28
35) Refer to Table 8-2. As