Question

A Nash equilibrium in a game is

	A.	an outcome in which all players are choosing the best strategy they can, given the choices being made by all the other players.
	B.	a strategy which is always inferior for a player to choose, regardless of what other players do.
	C.	an outcome in which all players experience their best possible collective outcome.
	D.	an outcome in which a player receives his/her best possible individual payoff.

The prisoners’ dilemma game

	A.	is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players.
	B.	has no Nash equilibrium since players, regardless whether they initially agree to play their dominated strategies, will have the incentive to switch to their dominant ones.
	C.	has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other.
	D.	Both (a) and (c) are correct.

Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. What is the likely outcome if the firms could successfully collude? (Hint: create the payoff matrix for yourself.)

	A.	Both firms may or may not advertise.
	B.	One will advertise and the other will not.
	C.	Both firms will advertise.
	D.	Neither firm will advertise.

Suppose two companies own adjacent oil fields, beneath which is a common pool of oil worth $30 million. For each well that is drilled, the company that drills the well incurs a cost of $3 million. Each company can drill one or two wells. Firms’ revenues are proportional to their share of the total number of wells drilled; for example, if three wells have been drilled total of which one firm has two, it gets two-thirds of the oil revenues, or $20 million (gross). What is the likely outcome of this game if each company pursues its own self-interest? (Hint: create the payoff matrix for yourself.)

	A.	Each company drills one well and experiences a profit of $15 million.
	B.	Each company drills one well and experiences a profit of $12 million.
	C.	Each company drills two wells and experiences a profit of $9 million.
	D.	One company drills two wells and experiences a profit of $14 million; the other company drills one well and experiences a profit of $7 million.

Answer 1

Q- A Nash equilibrium in a game is ?

Answer- A) an outcome in which all players are choosing the best strategy they can, given the choices being made by all the other players.

Q- The prisoners’ dilemma game

Answer- D) Both (a) and (c) are correct.

Q- Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. What is the likely outcome if the firms could successfully collude? (Hint: create the payoff matrix for yourself.)

Answer- D) Neither firm will advertise.

Q- Suppose two companies own adjacent oil fields, beneath which is a common pool of oil worth $30 million. For each well that is drilled, the company that drills the well incurs a cost of $3 million. Each company can drill one or two wells. Firms’ revenues are proportional to their share of the total number of wells drilled; for example, if three wells have been drilled total of which one firm has two, it gets two-thirds of the oil revenues, or $20 million (gross). What is the likely outcome of this game if each company pursues its own self-interest? (Hint: create the payoff matrix for yourself.)

Answer- B) Each company drills one well and experiences a profit of $12 million.