Applied Game Theory
Test Bank
Course Introduction
Applied Game Theory explores the strategic interactions among rational decision-makers in various real-world contexts, such as economics, business, politics, and social situations. This course introduces fundamental concepts of game theory, including Nash equilibrium, dominant strategies, mixed strategies, repeated and sequential games, and bargaining. Students will analyze and model conflict, cooperation, and negotiation scenarios to predict optimal decision-making outcomes. Emphasis is placed on applying theoretical tools to case studies and practical problems, equipping students with a framework for understanding and influencing strategic behavior in competitive and cooperative environments.
Recommended Textbook
Economics of Strategy 6th Edition by
David Besanko
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14 Chapters
419 Verified Questions
419 Flashcards
Source URL: https://quizplus.com/study-set/1331
Page 2
Chapter 1: The Power of Principles: an Historical Perspective
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) What significant government infrastructure project led to the development of national stock and commodity markets?
A) Transcontinental Railroad
B) Erie Canal
C) Union Pacific Railroad
D) Prime Meridian Conference
E) Central Pacific Railroad
Answer: A
Q2) By simultaneously halting air traffic and financial markets,what recent historical event highlighted the interdependence company infrastructure?
A) 2000 Presidential Election
B) 2004 Olympics
C) Fall of Enron
D) September 11, 2001
E) Hurricane Katrina
Answer: D
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Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Which of the following benefits of diversification explains the idea that mergers are more likely when there is an expectation of positive changes in market share?
A) Use of internal capital markets
B) Economies of scale and scope
C) Economizing on transaction costs
D) Diversifying shareholder portfolios
E) Identifying undervalued firms
Answer: B
Q2) Which of the following best describes economies of scope?
A) The average cost declines as output increases
B) The average cost increases as output increases
C) The average cost remains constant as output increases
D) Savings are achieved when a firm produces a wider variety of goods
E) Savings are achieved when a firm produces a decreased variety of goods
Answer: D
Q3) Suppose the cost of producing a 30 second commercial for television is $100,000.If airtime on the evening news costs $200,000 and is viewed by 5 million people,what is the advertising cost per potential customer?
Answer: $.06 per potential customer,or $6.00 per 1000 customers
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Page 4
Chapter 3: The Vertical Boundaries of the Firm
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30 Flashcards
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Sample Questions
Q1) Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?
A) Arm's length market transactions
B) Long-term contracts
C) Strategic alliances and joint ventures
D) Parent/subsidiary relationships
E) Parent/subsidiary relationships.
Answer: A
Q2) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.If your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and market price (bailout market price in the event Dell does not buy)Pm=$22/unit,what is your company's RSI (relationship specific investment)?
Answer: $10 million
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm's length market transaction as the level of asset specificity increases?
A) The cost difference increases with greater asset specificity
B) Scale-based advantages of outside suppliers are likely to be stronger with greater asset specificity
C) The cost difference declines with greater asset specificity
D) Scope-based advantages of outside suppliers are likely to be stronger with greater asset specificity
E) The costs are negative for all levels of asset specificity
Q2) Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?
A) Backward Integration
B) Forward integration
C) Nonintegration
D) Contractually unbound
E) Contractually bound
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Chapter 5: Competitors and Competition
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Sample Questions
Q1) Suppose two hot dog stands,Al's & Bob's,position themselves at different ends of a 1000 yard stretch of beach.Assume there are 100 beach goers evenly distributed along the stretch of beach and travel costs are $.01 per yard.If Al charges $1 for his hot dogs and Bob charges $2 for his hot dogs,what is the cost of purchasing a hot dog from each stand for a hungry beachgoer situated at a position D yards from Al's end of the beach? How many consumers will go to Al's and how many will go to Bob's?
Q2) What term does Sutton use to describe the costs of establishing a credible brand?
A) Brand investment
B) Cost of brand establishment
C) Cost of advertising
D) Endogenous sunk cost
E) Market establishment cost
Q3) The causal connection between firms is known as the:
A) Market structure formula
B) Structure, Conduct, Performance paradigm
C) Competition index
D) Herfindahl Iindex
E) Concentration, Profit connection
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Chapter 6: Entry and Exit
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Sample Questions
Q1) What situation occurs if an incumbent firm with increasing marginal costs or limited capacity sets a price just below the entrants' marginal costs even though the incumbent may be unable to meet all market demand (or possibly may have to sacrifice its profits to do so)?
A) Contestable limit pricing
B) Strategic limit pricing
C) Predatory pricing
D) Quality pricing
E) Capacity expansion
Q2) What term represents the conduct and performance of firms in the market after entry has occurred?
A) Postentry competition
B) Postentry actions
C) Postentry procedures
D) Postentry diversification
E) Postentry strategic decisions
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Chapter 7: The Dynamics Competing Across Time
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Sample Questions
Q1) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?
Q2) Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?
A) Price cutting is easier to detect when demand conditions are volatile
B) Pricing coordination becomes easier in a volatile demand condition because firms are chasing a moving target
C) Price cutting is harder to detect when demand conditions are stable
D) Demand volatility is an especially serious problem when the production involves substantial variable costs
E) Demand volatility is an especially serious problem when the production involves substantial fixed costs
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Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following is the most likely substitute for commercial aircraft travel between Chicago and Tokyo?
A) Bicycle
B) Teleconferencing
C) Automobile
D) Commuter train
E) Walking
Q2) Which of the following is a complement to professional sports?
A) Merchandise sales
B) Gambling
C) Luxury Boxes at stadiums
D) Food and beverage sales
E) None of the above
Q3) Substitutes erode profits because of which of the following factor?
A) Substitutes compete for similar inputs driving up production costs
B) Substitutes divide demand and drive up internal rivalry
C) Firms producing substitutes use similar worker skills dividing the labor pool
D) Manufacturers of substitutes enter markets later and have lower sunk costs
E) None of the above
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Page 10
Chapter 9: Strategic Positioning for Competitive Advantage
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Sample Questions
Q1) Which of the following is not a common characteristic of capabilities?
A) They are valuable across multiple products or markets
B) They are tacit
C) They are easy to reduce to simple algorithms or procedure guides
D) They are embedded in what Richard Nelson and Sidney Winter call organizational routines - well-honed patterns of performing activities inside an organization
E) They can persist even though individuals leave the organization
Q2) Which of the following is a capability?
A) Patents and trademarks
B) Brand-name reputation
C) Installed base
D) Organizational culture
E) Sourcing skills
Q3) What is another term for a "win-win" business opportunity?
A) Economic profit
B) Excess total surplus
C) Gains from trade
D) Consumer surplus excess
E) Benefit - Benefit transaction
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Chapter 10: Information and Value Creation
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Sample Questions
Q1) Products for which consumers cannot easily evaluate quality even after purchasing and using the product are called:
A) Experience goods
B) Search goods
C) Retail goods
D) Consumer goods
E) Credence Goods
Q2) Which of the following serves as a voluntary signal of quality?
A) Warrantee
B) Independent reviews
C) Truth in Advertising
D) Free product financing
E) Public claims
Q3) Which of the following best describes the consumer's shopping problem?
A) Having enough money to purchase all necessary goods and services
B) Finding the seller that offers the highest value of B - P
C) Determining the quality of products
D) Locating sellers that provide the required products
E) Selecting between brand products and non-brand products.
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Page 12
Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) Which of the following terms best describes the situation when sources of competitive advantage in an industry are being created and eroded at an increasingly rapid rate?
A) Leveraging resources
B) Strategic intent
C) Strategic stretch
D) Hypercompetition
E) Global dominance
Q2) Which of the following is least likely a characteristic of profit persistence in an industry?
A) Entry barriers exist
B) Economic profits should quickly converge to zero
C) Barriers to imitation exist
D) Firms earning above-average profits today should continue to do so in the future
E) Low profit firms today should remain low-profit firms in the future
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13
Chapter 12: Performance Measurement and Incentives
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Sample Questions
Q1) Which of the following terms best describes a piece of information on which an incentive contract (explicit or implicit)can be based?
A) Absolute Performance
B) Relative Performance
C) Incentive
D) Performance measure
E) Performance standard
Q2) Which of the following is not a characteristic of performance based pay?
A) The slope of the relationship between pay and performance for an employee provides incentives for effort, not the level of pay
B) Employees will always prefer performance based pay thus aligning principal/agent objectives
C) The overall value maximizing effort level for an employee occurs when personal marginal benefit equals personal marginal cost
D) Performance based pay can resolve hidden information problems
E) Pay contracts approaching 100% commission and negative salaries can occur
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14
Chapter 13: Strategy and Structure
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Sample Questions
Q1) What type of structure is the Japanese keiretsu structure?
A) Unitary functional structure
B) Multidivisional structure
C) Matrix structure
D) Network structure
E) Individual structure
Q2) Self-containment emphasizes which of the following when developing coordination?
A) Cost structures
B) Agency costs
C) Strong lateral relations
D) Autonomy across units
E) Unitary alignment
Q3) Which of the following structures involves multiple groups and multiple levels of groupings arising from the need not just to organize individuals into groups,but to organize groups into larger groups?
A) Complex hierarchy
B) Coordination
C) Control
D) Hierarchy of authority
E) Departmentalization
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Chapter 14: Environment, power, and Culture
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Sample Questions
Q1) What aspect(s)of internal context are important in situations of chronic goal conflict?
A) Formal authority
B) Formal controls
C) Contracts
D) Power and culture
E) Exclusive dealings
Q2) Which of the following is true about culture?
A) Culture increases agency costs
B) Culture reduces bargaining costs
C) Culture reduces transactions costs
D) Culture increases economic costs
E) culture has no effect on costs
Q3) Which of the following is not a way firms suffering from dependence relationships can take action to reduce their dependence on buyers or suppliers?
A) Vertical integration
B) Using a monopolist buyer/supplier
C) Long-term contracting
D) Joint ventures
E) Alliances
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Page 16