Final Review

Question 1

The study of how interdependent decision makers make choices.

Answer 1

Game Theory

Question 2

A game must include: ___,___,__,___,___,___,___.

Answer 2

Players, actions, strategies, payoffs, outcomes, equilibria, and information.

Question 3

The decision makers.

Answer 3

Players

Question 4

includes all of the possible moves that a player can make.

Answer 4

Actions

Question 5

Are rules telling each player which action to choose at each point in the game.

Answer 5

Strategies

Question 6

Usually consist of the profits or expected profits the players receive after all of the players have picked strategies and the game has been played.

Answer 6

Payoffs

Question 7

the game is a set of results the modeler selects from the values of actions, payoffs, and other variables after the game has been completed.

Answer 7

Outcome

Question 8

a strategy combination that consists of the best strategy for each player in the game.

Answer 8

Equilibrium

Question 9

modeled by defining how much each player knows at each point in the game.

Answer 9

Information

Question 10

Each player knows every move the other players have made before taking any action.

Answer 10

Perfect Information

Question 11

a player of random actions. Many games modeled by economists require a pseudo-player,
nature, to take random actions at some point, or points, in a game.

Answer 11

Nature

Question 12

some players have more information

than other players at the beginning of the game.

Answer 12

Incomplete information

Question 13

In games including nature, if nature never moves after any other player moves, the
game is said to be of

Answer 13

Certain Information

Question 14

; if nature moves after another player has moved, the game is
said to be of

Answer 14

Uncertain Information

Question 15

If all players have exactly the same information when each player moves, the
game is said to be of

Answer 15

Symmetric Information

Question 16

if some players have different information than other

players, the game is played with

Answer 16

Asymmetric Information

Question 17

a strategy that outperforms any other strategy no matter what strategy an
opponent selects.

Answer 17

A dominant strategy

Question 18

the only one of the game’s cells where both players are doing the best they can when
given the choice of their opponent.

Answer 18

Nash Equilibrium

Question 19

Sequential games are known as ____ and represented by ____

Answer 19

Dynamic games; Game trees

Question 20

a game that starts at any decision point or node in a game and continues to the
end of the game

Answer 20

Subgame

Question 21

a point in an extensive form of a game at which a player or nature takes an action, or
the game ends.

Answer 21

a node

Question 22

The game tree representation of the game is known as the

Answer 22

Extensive Form

Question 23

Game theorists distinguish the extensive form of a game from the simpler

Answer 23

Strategic Form

Question 24

In a cournot model what does each firm believe about its competitors

Answer 24

its competitors will always maintain its current output.

Question 25

two identical firms, Identical costs and there is no product differentiation, Price is
a simple function of the total quantity produced by the two firms.

Answer 25

Duopoly market

Question 26

the leader makes a more logical assumption than the follower, and as a result,
the game’s equilibrium changes.

Answer 26

The Stackelberg Model

Question 27

price falls to MC, the perfectly competitive price, and there is allocative efficiency.

Answer 27

Bertrand Duopoly.

Question 28

The solution to this Bertrand-Edgeworth model with capacity constraints is for each firm to take turns
undercutting each other until one of the two reaches a certain low fare, at which point the other
increases its fare back up to the high fare, and then the cycle starts all over again.

Answer 28

Edgeworth Cycle

Question 29

In practice, it is much more common to find industries in which there is a _____ ____ as well some
number of smaller ____ firms.

Answer 29

Dominant Firm; fringe.

Question 30

Two factors can lead to a dominant firm–competitive fringe market structure:

Answer 30

1. The dominant firm may have a significant cost advantage compared to its rivals, due to superior
   technology, management, or location or early entry and learning by doing, resulting in lower
   costs than rival firms.
2. The dominant firm may have a superior product.

Question 31

contends that potential competition may be more
important than actual competition and that even a completely monopolized market may
perform as if it were perfectly competitive in structure.

Answer 31

Contestable markets hypothesis

Question 32

Three basic assumptions:

Answer 32

1. Free Entry
2. Entry is absolute
3. No sunk costs are associated with entry.

Question 33

means that incumbent firms have no advantages, and there are no barriers to
entry.

Answer 33

Free Entry

Question 34

e. If a potential entrant enters the market and charges a price below the
incumbent’s price, then the entrant will completely displace the incumbent.

Answer 34

Entry is Absolute

Question 35

Permits “hit-and-run” entry in which firms can enter

a market, extract profits for a period of time, and then withdraw with zero sunk cost losses.

Answer 35

No sunk costs are associated with entry

Question 36

products that must be consumed together with other products

Answer 36

complements

Question 37

the value of goods or services produced in network industries to a potential customer depends on the number of consumers already owning that good or using that service.

Answer 37

Consumption Externalities

Question 38

most users don’t like learning features of a new operating system, a new word-processing program, or a new spreadsheet. In the presence of significant switching costs, consumers are locked in to using a specific service or product.

Answer 38

Switching costs and lock-in

Question 39

Price discrimination occurs whenever

Answer 39

the difference in prices between consumers is not proportional to the difference in costs.

Question 40

Discrimination can occur only if

Answer 40

Market power exists.

Question 41

involves charging a different price to each customer.

Answer 41

First degree price discrimination.

Question 42

All consumers are offered the same price schedule, and then consumers self-select into different price categories.

Answer 42

Second Degree Discrimination

Question 43

Firms are able to separate consumers into two or more groups according to their different elasticities of demand.

Answer 43

Third-degree price discrimination

Question 44

consists of lump sum payment for a good service combined with a per unit user charge.

Answer 44

Two-part-tariff

Question 45

consumers can purchase a good only if they agree to purchase another
good.

Answer 45

Tie-in sales agreement

Question 46

two subdivided tie-in sales agreement

Answer 46

package tie-in sales or bundling

requirement tie-in sales

Question 47

a tying agreement in which goods are purchased in fixed proportions.

Answer 47

Bundling

Question 48

the consumer willing to pay more for one good is willing to pay less for the other good.

Answer 48

Negatively Correlated.

Question 49

one consumer would be willing to pay more for both goods

and bundling would not increase total revenues.

Answer 49

Positively Correlated