According to the kinked demand curve model, regardless of whether a firm increases or decreases price, its total revenues will decrease as a result of the price change.
63) A major weakness of the kinked demand curve model is that it does not explain how the equilibrium price, i.e., the price at the kink in the demand curve, is determined.
64) One of the implications of the kinked demand curve model is that even if a firm's costs change by a measurable amount, market price is unlikely to change. This helps explain the price rigidity observed in many oligopolistic markets.
65) In the prisoner's dilemma game, each player's dominant strategy leaves her with a larger payoff than she could receive by cooperating with the other player; however, the "prisoner's dilemma" is that as a result of noncooperation she cannot chose her dominant strategy.
66) The decision by the federal government to prohibit cigarette companies from advertising on television actually caused the companies' profits to increase, an outcome that is consistent with the prediction of the prisoner's dilemma game.
67) In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.
68) In game theory, a Nash equilibrium is the set of strategies each of the players chooses by selecting the strategy that maximizes her payoff independent of what the other players might choose.
69) Assume the players in a game have reached a Nash equilibrium. It is then reasonable to assume that each player has chosen its dominant strategy.
70) The ability to make a credible commitment is necessary for the first mover to gain an advantage in a sequential game.
71) Assume a firm has decided to undertake a limit pricing strategy. For the strategy to be successful, the firm does not need to actually possess a cost advantage over potential entrants. Rather, the firm simply has to be able to convince potential entrants that it does, in fact, possess an advantage.
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