ECOS3003 Questions
Week 2 Extra Questions
1. Consider the following scenario in an organization, represented by the game below. Players 1 and 2 choose their actions simultaneously. The first payoff in each square is 1’s payoff; the second is the payoff of player 2.
Which statement is true?
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a. The Nash equilibrium is (Renege, Renege), where the first strategy is player 1’s and the second is for player 2; this is a prisoners’ dilemma.
b. The Nash equilibrium is (Renege, Cooperate); this is a prisoners’ dilemma.
c. The Nash equilibrium is (Cooperate, Renege); this is a prisoners’ dilemma.
d. The Nash equilibrium is (Cooperate, Cooperate); this is not a prisoners’ dilemma. e. The Nash equilibrium is (Renege, Renege); this is not a prisoners’ dilemma.
2. Consider the following situation in an organization, represented by the game below. In this organization, two workers, 1 and 2, play the game outline below two times (in two periods). In each period, both workers simultaneously choose their actions. After the first period, the actions chosen are revealed to everyone in the organization (that is, both workers). In the second period, both players again simultaneously choose their actions, as outlined in the normal‐form game below. Note, the first payoff in each square is 1’s payoff (for that period); the second is the payoff of worker 2.
ECOS3003 Questions
What is the Nash equilibrium of the game?
a. (Renege, Renege) in the first period, and (Cooperate, Cooperate) in the second period. b. (Cooperate, Cooperate) and (Cooperate, Cooperate)
c. (Cooperate, Cooperate) and (Cooperate, Renege)
d. (Cooperate, Cooperate) and (Renege, Renege)
e. (Renege, Renege) and (Renege, Renege)
3. Consider a potential trading relationship between a law firm and a business client. The marginal cost of production for the law firm is given by MC = 2q, where q is the quantity of legal services provided. The demand curve for the client is MB = 150 – q. Note, however, that it is difficult to ascertain how many unit of legal service are actually provided. To (partially) remedy this, the law firm can adopt a recording system at a cost of $150. Similarly, for $150 the client can implement an auditing system to try to verify the number of legal services actually provided by the law firm. However, even if both firms implement the auditing and recording systems, only 30 units of legal services will actually be traded. What is the total agency cost?
e. None of the above.
4. Consider the game illustrated below. The two workers each simultaneously choose their actions. What are the Nash equilibria of the game?
ECOS3003 Questions
a. (Renege, Renege), where the first strategy belongs to worker 1 and the second strategy in the parentheses is that of worker 2
b. (Renege, Cooperate)
c. (Cooperate, Renege)
d. (Renege, Renege) and (Cooperate, Cooperate)
e. None of the above.
5. According to the Coase theorem
a. property rights should be assigned and exchangeable to achieve efficiency
b. externalities prevent the market from producing an efficient allocation of resources
c. the initial distribution of property rights affects the efficiency in the allocation of resources d. significant transaction costs make efficiency easier to achieve
e. none of the above
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