Two Players Are Engaged in a Game of "Chicken

question 10

Multiple Choice

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 84 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)a mixed strategy equilibrium in which each player swerves with probability 0.30 and drives straight with probability 0.70.
• B)two mixed strategies in which players alternate between swerving and driving straight.
• C)a mixed strategy equilibrium in which one player swerves with probability 0.30 and the other swerves with probability 0.70.
• D)a mixed strategy in which each player swerves with probability 0.15 and drives straight with probability 0.85.
• E)no mixed strategies.

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Definitions:

Debt Ratio

Debt divided by total assets. A financial ratio measuring the degree to which the firm uses borrowed money.

Total Debt

The sum of all liabilities, both current and long-term, that a company owes to external parties.

Net Worth

The total assets minus total liabilities of an individual or company, indicating financial health and stability.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit a company makes after paying for variable costs of production but before paying interest or tax.