AP Micro Game Theory and Strategic Behavior

Question 1

What is a Nash Equilibrium in game theory?

Accepted Answer

A situation where no player can benefit by unilaterally changing their strategy

Answer

A situation where all players cooperate to maximize joint profits

Answer

A situation where one firm sets prices and all others follow

Answer

A situation where government intervention forces a stable market outcome

Question 2

In the classic prisoner's dilemma, what is each prisoner's dominant strategy?

Accepted Answer

Defect (confess) regardless of what the other prisoner does

Answer

Always cooperate (stay silent) to protect both prisoners

Answer

Cooperate only if the other prisoner cooperates first

Answer

Choose randomly to prevent the other prisoner from predicting their move

Question 3

Which of the following best describes the market structure of an oligopoly?

Accepted Answer

A few large firms that are mutually interdependent in their pricing and output decisions

Answer

Many small firms producing identical products with free entry and exit

Answer

A single firm controlling the entire market output

Answer

Many firms selling differentiated products with no barriers to entry

Question 4

How is a dominant strategy identified in a payoff matrix?

Accepted Answer

It is the strategy that yields the highest payoff regardless of what the other player chooses

Answer

It is the strategy that maximizes the combined payoff for all players

Answer

It is the strategy that always results in a Nash Equilibrium

Answer

It is the strategy that minimizes the maximum possible loss

Question 5

Why does collusion among oligopolists tend to be unstable over time?

Accepted Answer

Each individual firm has an incentive to cheat by secretly lowering its price to capture more customers

Answer

Government antitrust laws always detect and break up collusive agreements immediately

Answer

Firms have no incentive to charge the agreed-upon price once collusion begins

Answer

Collusive agreements require identical production costs among all participants

Question 6

The kinked demand curve model of oligopoly assumes that rival firms will:

Accepted Answer

Match price decreases but ignore price increases

Answer

Match price increases but ignore price decreases

Answer

Neither match price increases nor price decreases

Answer

Always match both price increases and price decreases

Question 7

In the prisoner's dilemma, why do both players end up with a suboptimal outcome even though both are acting rationally?

Accepted Answer

Each player rationally follows their dominant strategy, producing a collectively worse outcome than cooperation would have achieved

Answer

Both players lack information about the available payoffs in the game

Answer

The game is designed so that no equilibrium exists

Answer

Players are prevented from communicating by a third-party enforcer