The Cold War Example in Your Text Illustrated Several Important

question 14

Multiple Choice

The Cold War example in your text illustrated several important points about sequential games. Which was not one of those points?

• A)Actors must know the values of the payoff tree.
• B)A doomsday device by one party can offset a bad outcome that pure rationality by all parties would dictate.
• C)One party might accept a worse outcome than the rational outcome in order to punish the opposing party or to maintain parity between the parties involved.
• D)The final outcome will be the same whether the parties are rational or not.

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Definitions:

Producer Surplus

The gap between the price that sellers are prepared to accept for a product and the real price it sells for in the market.

Total Variable Costs

The total of all costs that vary with the level of production or output.

Fixed Costs

Costs that do not change with the level of output or business activity, such as rent, salaries, or loan payments.

Marginal Costs

The extra cost incurred for producing one additional unit of a product or service.