UCLA ECON 101/ Microeconomics (Econ 101) - MIDTERM 2 — Version B — Answer key | Latest A+ 2026/27.

UCLA

Economics 101 - Winter 2026

Professor Daniel Haanwinckel

MIDTERM 2 — Version B — Answer key

NAME: ID:

INSTRUCTIONS
This exam has a total of 27 questions: 16 true/false items (worth 0.5 points each), 11
multiple-choice questions with five options (worth 1.0 points). The last question is a “bonus
question”—it can increase your total score if answered correctly, but it will not reduce your
score if answered incorrectly or left blank.
Make sure you fill out your name and UID in the Scantron form before you start. In
addition, please write your Exam Version (A or B) and your Section at the top of
the Scantron form.
You should mark only one option—(a), (b), (c), (d), or (e)—in each question. All infor-
mation must be filled out in No. 2 pencil. Fields/bubbled answers completed in pen will not
be read by the scanners.
In all questions below, NE means “Nash Equilibrium(a)” and SPNE means “Subgame-
perfect Nash Equilibrium(a).”
Good luck!
TRUE OR FALSE QUESTIONS (items 1-16)
Mark (a) if true or (b) if false in the Scantron form.

1. In a static game, a mixed strategy for a player is a probability distribution over that
player’s own available actions.
(a) True. (b) False.
Solution: True. A mixed strategy specifies probabilities over a player’s own pure
strategies.

2. If, in a Nash equilibrium, a player is randomizing between two actions, then it must be
true that the randomization achieves the same expected payoff as that of playing each
of those two actions for sure, given the other players’ equilibrium strategies.

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, (a) True. (b) False.
Solution: True. In a Nash equilibrium, any action that a player randomizes over
must give that player the same expected payoff, given the other players’ equilibrium
strategies. Therefore, the mixed strategy yields the same expected payoff as playing
any one of those actions for sure.

3. In a mixed-strategy Nash equilibrium of a finite game, a player can assign positive
probability to a strictly dominated strategy.
(a) True. (b) False.
Solution: False.

4. The concept of subgame perfect Nash equilibrium (SPNE) only applies to repeated
games in which the same stage game is played every period.
(a) True. (b) False.
Solution: False. SPNE is defined for general dynamic (extensive-form) games, not
just repeated play of the same stage game. For example, entry-deterrence games and
Stackelberg quantity games are analyzed using SPNE.

5. Backward induction is a method used to find the mixed-strategy Nash equilibrium of
static (simultaneous-move) games.
(a) True. (b) False.
Solution: False. Mixed-strategy Nash equilibria in static games are found using best-
response and indifference conditions, not by backward induction, which is a tool for
dynamic (sequential-move) games.

6. Consider a strategy profile in a dynamic game. If that strategy profile requires a player
to act against their own interest in one subgame (that is, take actions that would not
maximize their payoff in that subgame, given what the other players are doing), then
the proposed strategy profile cannot be a subgame perfect Nash equilibrium (SPNE)
of the entire game.
(a) True. (b) False.
Solution: True. By definition, a subgame perfect Nash equilibrium must induce a
Nash equilibrium in every subgame. If the restriction of a strategy profile fails to be a
Nash equilibrium in even one subgame, the profile cannot be SPNE.




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, 7. In a two-stage Stackelberg quantity-setting game, if you change the order in which the
firms move (so that the follower becomes the leader and vice versa), the equilibrium
quantities chosen by each firm will change as well.
(a) True. (b) False.
Solution: True. In the Stackelberg quantity game, the first mover (leader) and sec-
ond mover (follower) choose different equilibrium quantities. Swapping the order of
moves changes which firm is the leader and follower, so each firm’s equilibrium quan-
tity changes.

8. In the standard Stackelberg duopoly with linear demand and identical constant marginal
costs (the one covered in class), the leader earns a higher profit than the follower.
(a) True. (b) False.
Solution: True. With linear demand and identical constant marginal costs, the Stack-
elberg leader commits to its quantity first and anticipates the follower’s best response,
resulting in a higher equilibrium profit than the follower’s.

9. In a two-player, finitely repeated game whose stage game is a Prisoner’s Dilemma, it
may be possible to find SPNE where players cooperate in at least one round.
(a) True. (b) False.
Solution: False. In a finitely repeated Prisoner’s Dilemma with a unique stage-game
Nash equilibrium (defect, defect), the unique SPNE has both players defect in every
period, so cooperation never occurs on the equilibrium path.

10. The discount factor in a repeated game represents how much a player values future
payoffs relative to current payoffs.
(a) True. (b) False.
Solution: True. A higher discount factor means that future payoffs are valued more
relative to current payoffs (players are more ?patient?), consistent with the interest-rate
and continuation-probability interpretations discussed in class.

11. Economic theory predicts that, when firms have identical products, identical and con-
stant marginal costs, have no capacity constraints, and compete by choosing prices,
then the market price must be equal to marginal cost in every subgame perfect Nash
equilibrium, even if that price competition game is repeated infinitely many times.
(a) True. (b) False.


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