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courses.aplia.com M & Collusive Outcome v MindTap- Cengage L Student-myBama Add or Drop Classes Attempts: Average: 13 7. Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Café 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 $14,000; alternatively, if they both hire workers to clean, each will earn only $11,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000 Complete the following payoff matrix using the previous information. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up Cleans Up 11,000 $11,000 All-You-Can-Eat Café Doesn't Clean UpS $14,000 $14,000 If All-You-Can-Eat Café and GoodGrub Diner decide to collude, the outcome of this game is as follows: All-You-Can-Eat Café GoodGrub Diner and If both restaurants decide to cheat and behave noncooperatively, the outcome reflecting the unique Nash equilibrium of this game is as follows: AIl You-Can-Eat Café re , and GoodGrub Diner Grade It Now Save & Continue Continue without saving

Explanation / Answer

Good Grub Dinner All you can eat Café Cleans Doesnot cleans Cleans 11000, 11000 18000, 6000 Doesnot cleans 6000, 18000 14000, 14000 If both collude then the outcome of the game is that AlYou can Eat café doesnot clean up and the GoogGrab Dinenr Doesn't Clean up. If both the restuarants decide to cheat and behave coopeartively , the outcome is the unique Nash Equilibrium where All-You can eat café cleans up and the GoodGrub Dinner cleans up.

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