8. Collusive outcome versus Nash equilibrium Dismiss All Please Wait . . . Pleas
ID: 2748640 • Letter: 8
Question
8. Collusive outcome versus Nash equilibrium
Dismiss All
Please Wait . . .
Please Wait...
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 $11,000; alternatively, if they both hire workers to clean, each will earn only $8,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $16,000, and the other restaurant will make only $4,000.
Complete the following payoff matrix using the previous information. (Note: All-You-Can-Eat Cafe and GoodGrub Diner are both profit-maximizing firms.)
Points:
Close Explanation
Explanation:
If All-You-Can-Eat Cafe and GoodGrub Diner decide to collude, the outcome of this game is as follows: All-You-Can-Eat Cafe selector 1
cleans
does not clean
and GoodGrub Diner selector 2
cleans
does not clean
.
Points:
Close Explanation
Explanation:
If both restaurants decide to cheat and behave noncooperatively, the outcome reflecting the unique Nash equilibrium of this game is as follows: All-You-Can-Eat Cafe selector 1
cleans
does not clean
, and GoodGrub Diner selector 2
does not clean
cleans
.
GoodGrub Diner Cleans Up Doesn’t Clean Up All-You-Can-Eat Cafe Cleans Up , , Doesn’t Clean Up , ,Explanation / Answer
Godgrub Diner Cleans up Doesnot cleanup All you can eat café Cleans up 8000,$8000 $16000,$4000 Doesnot cleanup $4000,$16000 11000,$11000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.