ECON 4180 Lecture 3: EC4180S16_L3

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28 Mar 2016

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Analyzing behavior in static settings: best response. Now let us study the two most basic concepts in the theory of strategic interaction: dominance and best response. Player i"s best response or best reply to the strategies s i chosen by the other players is the strategy s i that yields him the greatest payo ; that is, I(s i , s i) i(s0 i, s i) 8s0 i 2 si. (1) The best response is strongly best if no other strategies are equally good, and weakly best otherwise. More generally, if we allow for mixed strategies (players may randomize over their pure strategies), a best response requires the expected payo s for evaluating alternatives so that we can de ne it such that. I(s i , i) i(s0 i, i) 8s0 i 2 si. (2) where i 2 s i is player i"s belief about the strategies played by the other players.

Related Questions

1)The after-tax cost of debt generally increases when _______.

I. a credit rating agency upgrades a firmâs credit rating

II. a credit rating agency downgrades a firmâs credit rating

III. tax rates decrease

IV. bond prices rise

a)I and III only

b)II and III only

c)II, III, and IV only

d)I, II, III, and IV

e)None of the above

2)Of the following statements regarding the cost of preferred stock, which is/ are correct?

I. The cost of preferred stock is the rate of return on a perpetuity

II. The cost of preferred stock is the discount rate used to value a non-constant dividend growth stock

III. The cost of preferred stock is equal to the dividend yield

IV. The cost of preferred stock is independent of the stockâs price

a)I and II only

b)II and IV only

c)I, II, and III only

d)I and III only

e)IV only

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9. Which of the following statement(s) about production possibilities frontiers (PPFs) is (are) generally true? 1) the changing slope of the PPF illustrates the concept of increasing costs II) the second derivative of the PPF illustrates the concept of scarcity of resources III) the slope of the PPF illustrates the concept of opportunity costs A) only I B) only II C) only III DI & II E) I & III F) II & III G) I, II & III H) none of the three

6) Markets 1. enable buyers and sellers to get information II. are defined by economists as geographical locations where trade occurs. III. coordinate buying and selling decisions through price adjustments Which of the above statements are correct? A) I, II and III B) I and III only C) II and III only D) I only E) III only

ECON 4180 Lecture 3: EC4180S16_L3

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