Answer Options: Starting at top, left to right. 1. $7,000, $7,000 $10,000, $10,0
ID: 1100919 • Letter: A
Question
Answer Options:
Starting at top, left to right.
1. $7,000, $7,000
$10,000, $10,000
$12,000, $5,000
$5,000, $12,000
2. $5,000, $12,000
$10,000, $10,000
$7,000, $7,000
$12,000, $5,000
3. $7,000, $7,000
$5,000, $12,000
$10,000, $10,000
$12,000, $5,000
4. $10,000, $10,000
$7,000, $7,000
$5,000, $12,000
$12,000, $5,000
Answer Options for fill in the blanks:
1. Cleans
Does not Clean
2. Cleans
Does not clean
3. Does not clean
Clean
4. Does not clean
Cleans
Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Cafe and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $10,000; alternatively, if they both hire workers to clean, each will earn only $7,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $12,000, and the other restaurant will make only $5,000. Based on the information given, use the dropdown menus to fill in the table that follows (known as a payoff matrix). All-You-Can-Eat Cafe and GoodGrub Diner are both profit-maximizing firmsExplanation / Answer
From left to top,
($7,000 , $7,000) ($12,000 , $5,000)
($5,000 , $12,000) ($ 10,000 , $10,000)
The outcome if they decide to collude is that
Do not clean, Do not clean. -- since that gives them higher payoffs.
But if they behave uncooperatively, the Nash equilibrium is going to be
Clean, Clean. -- they have incentive to deviate their strategy to Clean since if only one of them cleans, the one with more clean setting can get a higher profit.
The Nash eq. is that knowing this, both chooses to clean.
Sarah, I have answered two other questions that you posted.
If you need help with a particular concept, let me know.
If you are just making sure that you have the right answer, don't bother :)
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