Game Theory and Business Strategy
Final Exam Questions
Course Introduction
Game Theory and Business Strategy explores the fundamental concepts of game theory and their application to real-world business decisions. The course covers topics such as strategic interaction, competitive and cooperative games, Nash equilibrium, repeated games, and auctions. Through case studies and practical examples, students learn how to model strategic situations, anticipate rivals moves, and develop optimal strategies in markets characterized by interdependent decision-making. The course equips students with analytical tools for understanding and addressing challenges related to pricing, entry and exit, bargaining, and firm collaboration, enabling them to make more informed and effective business decisions.
Recommended Textbook
Transactions and Strategies 1st Edition by Robert J. Michaels
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Chapter 1: Reasoning With Economics: Models and Information
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Sample Questions
Q1) Which of the following financial market developments has helped to remove financial constraints faced by people?
A)Online stock trading
B)Bank credit cards
C)Derivatives trading
D)ATM/Debit cards
Answer: B
Q2) The logical (and sometimes illogical) shortcuts that people derive from experience which economize on their mental capabilities are called:
A)irrationalities.
B)heuristics.
C)statistical errors.
D)probabilities.
Answer: B
Q3) Heuristics economize on the mental capabilities of people.
A)True
B)False
Answer: True
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Chapter 2: Transactions and Institutions: the Building Blocks
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Sample Questions
Q1) The total cost of purchasing a car is:
A)the dollar amount paid for it.
B)the dollar amount paid for it plus the seller's opportunity cost.
C)the dollar amount paid for it plus the buyer's opportunity cost of time spent on buying it.
D)the dollar amount paid for it plus the seller's opportunity cost of the time spent on looking for a buyer.
Answer: C
Q2) Fiona and Alicia divide their time equally between ironing shirts and cooking meals.Fiona can iron 5 shirts and cook 2 meals in an hour.Alicia can iron 6 shirts and cook 1 meal in an hour.If they have to iron 15 shirts and cook 5 meals, who should specialize in which activity?
A)Fiona should do all the work.
B)Alicia should do all the work.
C)Fiona should specialize in cooking meals and Alicia should specialize in ironing shirts.
D)Alicia should specialize in cooking meals and Fiona should specialize in ironing shirts.
Answer: C
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Page 4
Chapter 3: Markets
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Sample Questions
Q1) An increase in the price of an input will increase the _____ of producing the final good and shift the supply curve of the commodity _____.
A)marginal cost; upward
B)transaction cost; upward
C)marginal cost; downward
D)transaction cost; downward
Answer: A
Q2) Which of the following is a property of a forward contract?
A)In a forward contract cash is traded for immediate delivery.
B)The buyer of a forward contract is "short" while the seller of the contract is "long".
C)In a forward contract, the seller must own the commodity which is being traded.
D)The value of future delivery depends on the market price of the commodity.
Answer: D
Q3) A change in the price of a commodity affects both the demand and the quantity demanded.
A)True
B)False
Answer: False
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5
Chapter 4: Cost and Production
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Sample Questions
Q1) The greater the curvature of the isoquant:
A)the greater the degree of substitutability between the inputs.
B)the lower the possibility of substitution between inputs.
C)the higher the impact of a change in relative prices of inputs.
D)the lower the prices of inputs.
Q2) The cost of two inputs A and B are $100 and $200 per unit per month.A firm can afford to invest $10,000 per month on these inputs.The firm uses 30 units of A.Given a linear isocost such that the entire budget is exhausted, the firm will use 10 units of B.
A)True
B)False
Q3) The relationship between inputs used by a firm and output produced is given by the cost function.
A)True
B)False
Q4) Refer to Figure .An increase in the slope of an isocost implies:
A)the firm is using more of the input measured on the X-axis.
B)the total cost incurred by the firm has declined.
C)the input measured on the X-axis has become costlier.
D)the price of both inputs has declined.
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Chapter 5: Extreme Markets I: Perfect Competition
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Sample Questions
Q1) Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?
A)The long-run supply curve of land suitable for corn farming will be perfectly inelastic.
B)The long-run supply curve of land suitable for corn farming will be perfectly elastic.
C)The long-run supply curve of land suitable for corn farming will be less elastic than the short-run supply curve.
D)The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve.
Q2) If the long-run market supply curve is perfectly elastic, a decrease in variable cost will:
A)shift the supply curve upward to a higher market-clearing price level.
B)shift the supply curve downward to a lower market-clearing price level.
C)shift the supply curve to the right to a higher market-clearing output.
D)shift the supply curve to the left to a lower market-clearing output.
Q3) What is the short-run breakeven point of operation in a perfectly competitive market?
Q4) State two characteristics of the long-run equilibrium under perfect competition.
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Chapter 6: Extreme Markets II: Monopoly
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Sample Questions
Q1) The total revenue curve of a monopolist is:
A)U-shaped.
B)inverted U-shaped.
C)upward sloping.
D)downward sloping.
Q2) Refer to Figure .A monopoly provider of cruise services recognizes the opportunity to price discriminate and will charge the highest price to individual _____.
A)A
B)B
C)C
D)D
Q3) Refer to Figure .Which of the following conclusions can be drawn from this figure?
A)The monopolist produces at the point where marginal cost is zero.
B)The monopolist incurs a fixed marginal cost of OC'.
C)The monopolist charges a price of OP' and total revenue is OP'D'Q'.
D)The consumer surplus enjoyed by customers is PC'D".
Q4) What are the main differences between a monopolist and a perfectly competitive firm?
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Chapter 7: Between the Extremes: Interaction and Strategy
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Sample Questions
Q1) Refer to Table .What will be the Nash equilibrium if there is no interaction between the two students?
A)Student A will confess while Student B will remain silent.
B)Student B will confess while Student A will remain silent.
C)Both the students will confess.
D)Both the students will remain silent.
Q2) Which of the following assumptions were made by the Cournot model of oligopoly?
A)Each seller psychoanalyzes the competition and decides how to react in all possible situations.
B)Each seller psychoanalyzes the competition and exactly predicts the output decisions of the competitors.
C)Each seller chooses its own output and believes the others in the market will respond to its choices.
D)Each seller chooses its own output and believes the others in the market will not respond to its choices.
Q3) Explain the concept of Nash equilibrium with an example.
Q4) How does a dominant firm try to prevent new competitors from entering the oligopoly market?
Q5) When can a grim trigger prevent oligopolists from breaking an agreement?
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) Assume that the adoption of a new technology costing $8 per year lowers the marginal cost of producing Good X from $7 to $3.The firm will adopt the new technology if it expects annual profit to increase from $14 to $18.
A)True
B)False
Q2) If the seller of a good gets less than his/her opportunity cost and the buyer pays more than his/her valuation of the good, economic value is created.
A)True
B)False
Q3) Refer to Figure .Which of the following can be concluded about the innovative firm which reduces its marginal and average cost by using the new technology?
A)The equilibrium output produced by this firm will increase.
B)The equilibrium output produced by this firm will decrease.
C)This firm will offer its produce at a price below P0.
D)This firm will offer its produce at a price above P0.
Q4) How do firms benefit by maintaining public relations and influencing the government? Explain with examples.
Q5) How is economic value created during transactions between buyers and sellers?
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Chapter 9: Beyond Markets; Property and Contracts
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Sample Questions
Q1) According to the Coase theorem, if the initial distribution of rights favors some party, market efficiency will ensure that the net benefits to that party are maximized.
A)True
B)False
Q2) Define a contract and explain with examples.
Q3) Sellers in a perfectly competitive market make special arrangements to deal with particular customers and stand to lose value if their relationship with those customers ends.
A)True
B)False
Q4) If the costs of negotiating and enforcing contracts are _____ relative to the benefits, buyers and sellers have incentives to make economically efficient arrangements that _____ value.
A)high; increase
B)low; increase C)high, decrease
D)low; decrease
Q5) Why are inclusive property rights considered to be sources of wealth?
Q6) Discuss the Coasian reasoning with an example.
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Chapter 10: The Economics of Contracts
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Sample Questions
Q1) _____ is a contract that specifies actions to be taken if various situations come to prevail.
A)An insurance policy
B)Contingency
C)Unitization
D)An escalator
Q2) An automobile manufacturer imported equipment in order to produce a particular model at low cost.Falling demand, however, forced it to cease producing that model, and the company took a large loss because the equipment was not usable for producing other models.The equipment was characterized by:
A)locational specificity.
B)dedicated specificity.
C)human specificity.
D)task specificity.
Q3) If each of the parties to a contract controls a resource essential for the other's survival, opportunistic behavior by any of them will increase the value of the transaction.
A)True
B)False
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Chapter 11: Risk and Information in Contracts
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Sample Questions
Q1) An escalation or automatic adjustment provision in a purchase contract for some good deters opportunistic behavior and automatically reallocates risk as its price changes.
A)True
B)False
Q2) Assume that the utility function of an individual is represented as U = W - 0.001W; where W (his present wealth) = $250,000.He considers investing in a gamble which would double his wealth if he wins but still leave him with $250,000 if he loses.Given that his probability of winning is 0.6, calculate his expected wealth from the bet.
A)$300,000
B)$400,000
C)$250,000
D)$100,000
Q3) An insured person's incentive to behave in ways that raise the probability of a claim is known as:
A)a moral hazard.
B)the lemons problem.
C)the problem of adverse selection.
D)the problem of advantageous selection.
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Chapter 12: Organizations in Concept and Practice
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Sample Questions
Q1) An outside organization trying to gain control of a corporation offers a _____ by announcing its intent to purchase up to a certain number of the target's shares at a premium over their market price.
A)proxy fight
B)cash tender
C)junk bond
D)leveraged buyout
Q2) What are junk bonds?
Q3) A corporation's _____ can sometimes influence its decisions without making efforts to replace its management.
A)hierarchy
B)specialized workforce
C)small shareholders
D)block holders
Q4) A sole proprietor has limited liability and cannot be forced to pay its creditors from his/her personal resources.
A)True
B)False
Q5) State one implication of the principle of division of labor.
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Chapter 13: Organizational Design
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Sample Questions
Q1) Categorization of activities in an organization along product or geographic lines is called:
A)globalization.
B)decentralization.
C)functionalization.
D)divisionalization.
Q2) Identify the correct statement about relationships depicted in an organization chart.
A)A line that links an individual/division with the same at a lower level depicts informal authority of the former over the latter.
B)Equality on the chart for individuals A and B must mean they both have the same authority in practice.
C)It shows all relations between employees of an organization.
D)A line that links an individual/division with the same at a lower level depicts formal authority of the former over the latter.
Q3) Why do firms reorganize and change their structural forms?
Q4) How does a self-contained unit benefit a firm?
Q5) Define an M-form organization and discuss its advantages over a U-form organization.
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Chapter 14: Vertical Relationships
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Sample Questions
Q1) Which of the following observations about outsourcing is true for the U.S.economy?
A)The U.S.is the smallest international outsourcer in terms of dollar value.
B)About 30 percent of U.S.manufacturing costs were outsourced in 2003.
C)The highest percentage of outsourcing by U.S.businesses in 2003 was to other firms located in the United States.
D)Imports of business services by the U.S.made up around 2.5 percent of gross domestic product in 2003.
Q2) The obligations and prohibitions present in a contract between a franchiser and the franchisee are called vertical restraints.
A)True
B)False
Q3) Identify the reason why U.S.Steel prefers to own iron ore mines.
A)It helps them to coordinate iron ore transport and furnace operations.
B)It reduces the company's raw material costs.
C)It helps them to inspect the quality of the ore.
D)It reduces the competition the company faces in the world steel market.
Q4) Describe in brief the structure of a franchise contract.
Q5) How is a firm's vertical scope determined?
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Chapter 15: Employment Relationships
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Sample Questions
Q1) Which of the following methods could be used by an employer to align the incentives of an employee with its own interests?
A)Paying market wages
B)Paying efficiency wages
C)Signaling
D)Partially outsourcing human resource functions
Q2) In competitive markets, the elasticity of labor supply is:
A)unrelated to time.
B)inversely proportional to time elapsed since a wage change.
C)unity.
D)directly proportional to time elapsed since a wage change.
Q3) Given the value of marginal product of labor, the higher the wage rate, the higher the number of workers employed.
A)True
B)False
Q4) Over the long run, migration by workers to higher-wage regions:
A)allows wages to equalize across regions.
B)explains why wage differentials may persist.
C)causes disequilibrium in the labor market.
D)increases wages further in those regions.
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Chapter 16: Time, Risk and Options
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Q1) For a risk-averse person, an indifference curve representing the different combinations of variance of return and expected return will be downward sloping and convex to the variance of return axis.
A)True
B)False
Q2) A situation in which an individual has no information about probabilities and the underlying distributions of the possible outcomes of an investment choice is called:
A)a prior distribution.
B)updating.
C)risk tolerance.
D)pure uncertainty.
Q3) If an individual invests $20 in a bank deposit promising an interest of 12 percent per annum, compounded annually, he will receive $40 after 8 years.
A)True
B)False
Q4) When do financial options prove to be beneficial?
Q5) Point out the relevance of the Bayes' theorem.
Q6) Why are present value calculations used in real options?
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Chapter 17: Conflict, Negotiation and Group Choice
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Sample Questions
Q1) A characteristic function is:
A)one that identifies negotiations which depend on the characteristics of the bargainers.
B)one that gives the value each possible coalition of a group's members can create by operating independently.
C)one that identifies the most beneficial price for the buyer involved in a transaction.
D)one that identifies the most beneficial price for the seller involved in a transaction.
Q2) How is the production of public goods funded?
Q3) In which of the following cases are disputes more likely to be settled by negotiations than by court cases?
A)When the parties involved are risk averse
B)When time is not an important factor
C)When court costs are low
D)When parties have asymmetric beliefs about facts
Q4) Identify some of the salient features of voting as a method of determining the majority preference.
Q5) Identify the disadvantage of public goods.
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