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 Nash Equilibrium is a stable outcome in which no individual player can increase their payoff by changing only their own strategy, given the strategies of all other players.

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

Defecting is a dominant strategy because confessing yields a better personal outcome whether the other prisoner stays silent or also confesses.

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

An oligopoly consists of a small number of large firms whose decisions significantly affect one another, creating strategic interdependence.

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

A dominant strategy is one that produces a higher payoff for a player than any alternative strategy, no matter what strategy the opponent selects.

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

Although collusion raises industry profits, each firm can earn even more by secretly undercutting the agreed price, giving every member an incentive to defect from the agreement.

AP Practice Test

AP Practice Test

AP Micro Game Theory and Strategic Behavior