Question

6. If a single strategy is always optimal, regardless of opponents' strategies, then it is a a. First-mover advantage b. A Nash equilibrium c. Prisoners Dilemma d. A dominant strategy 7. In a market with a monopolist, which of the following pricing strategies maximizes total social welfare (no deadweight loss)? a. Perfect price discrimination b. Block pricing C. Group price discrimination d. None of the above; all monopolist pricing strategies create a deadweight loss Questions 8, and 9 refer to this game: Sonia Move 1 Move 2 Yuhan Move 1 Move 2 Move 3 1,1 -1,2 3,4 2,3 1,0 -2,1 8. In this game, a. Yuhan has a dominant strategy b. Sonia has a dominant strategy C. There are multiple Nash Equilibria d. There is only one Nash Equilibrium 9. If this was a sequential game, with Yuhan moving first, which of the following is a Subgame Perfect Nash Equilibrium a. Yuhan: Move 1, Sonia: Move 1 b. Yuhan: Move 1, Sonia: Move 2 C. Yuhan: Move 2, Sonia: Move 1 d. Yuhan: Move 3, Sonia: Move 1

Answer 1

6. d
(When the strategy is always optimal then its a dominant strategy.)

7. a
(Perfect price discrimination leads to no loss of surplus.)

8. c
(Given that Yuhan choose Move 1, Sonia's best response is Move 2(3).
Given that Yuhan choose Move 2, Sonia's best response is Move 1(2).
Given that Yuhan choose Move 3, Sonia's best response is Move 1(4).
Given that Sonia choose Move 1, Yuhan's best response is Move 3(3).  
Given that Sonia choose Move 2, Yuhan's best response is Move 1(2).  
Thus, there are two NE. They are (Move 1, Move 2) = (2, 3) and (Move 3, Move 1) = (3, 4) as best response of both players occur simultaneously at these two sets.)

9. d
(Using backwards induction, Sonia will choose Move 2(3), Move 1(2), and Move 1(4) corresponding to Yuhan's three moves.
So Yuhan will choose between (Move 1, Move 2) = (2, 3); (Move 2, Move 1) = (-1, 2); (Move 3, Move 1) = (3, 4). So, Yuhan will choose Move 3(3). Thus, the outcome is  (Move 3, Move 1) = (3, 4).)