Game Theory Practice

Which of the following best describes an oligopoly?

• many monopolistically competitive firms

• a few firms sharing monopoly power

• a former monopoly that has been broken up by the government

• a government-granted franchise or monopoly

What is the equilibrium of the below game?

• A,X
• A,Y
• B,X
• B,Y

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

• high
• low

• Neither company has a dominant strategy

• Both companies have an incentive to reduce production by %10

• Both companies have an incentive to reduce production by %20

• Only UA have an incentive to reduce production by %20

• Only UB have an incentive to reduce production by %20

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

What are the main characteristics of oligopoly?

• Few firms, independent, high barriers of entry
• Few firms, interdependent, high barriers of entry 
• Many firms, interdependent, low barriers of entry
• Many firm, independent, low barriers of entry

The characteristic of oligopolistic firms that makes them different from all other types of firms is that oligopolistic firms:

• Advertise their products
• Consider each other's decisions
• Produce differentiated products
• Face high barriers to entry

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.