(See Problem 3

question 18

Multiple Choice

(See Problem 3.) Two players are engaged in a game of "chicken." There are two possible strategies, Swerve and Drive Straight. A player who chooses to Swerve is called "chicken" and gets a payoff of zero, regardless of what the other player does. A player who chooses to Drive Straight gets a payoff of 15.43 if the other player Swerves and a payoff of -36 if the other player also chooses to Drive Straight. This game has two pure strategy equilibria and

• A) two mixed strategies in which players alternate between swerving and driving straight.
• B) a mixed strategy in which each player swerves with probability 0.35 and drives straight with probability 0.65.
• C) a mixed strategy equilibrium in which one player swerves with probability 0.70 and the other swerves with probability 0.30.
• D) a mixed strategy equilibrium in which each player swerves with probability 0.70 and drives straight with probability 0.30.
• E) no mixed strategies.

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Definitions:

Supply Price

The lowest price at which a seller is willing to sell a good or service, influenced by costs of production and market demand.

Quota Rent

The earnings exceeding normal profits received by license holders when import quotas are in place.

Demand Price

The price of a good or service dictated by the desire and ability of consumers to purchase it at certain price levels.

Import Quota

A government-imposed limit on the quantity or monetary value of certain goods that can be imported into the country over a specified period of time.