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8. 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 $12,000; alternatively, if they both hire workers to clean, each will earn only $9,000. 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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up Cleans Up GoodGrub Diner Doesn't Clean Up 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: All- You-Can-Eat Café , and GoodGrub Diner

8. 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 $12,000; alternatively, if they both hire workers to clean, each will earn only $9,000. 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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up Cleans Up GoodGrub Diner Doesn't Clean Up 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: All- You-Can-Eat Café , and GoodGrub Diner

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 9PA
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Attempts Keep the Highest/3 8. 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 $12,000; alternatively, if they both hire workers to clean, each will earn only $9,000. 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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up Cleans Up GoodGrub Diner $ Doesn't Clean Up 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: All- You-Can-Eat Café , and GoodGrub Diner
Transcribed Image Text:Attempts Keep the Highest/3 8. 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 $12,000; alternatively, if they both hire workers to clean, each will earn only $9,000. 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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up Cleans Up GoodGrub Diner $ Doesn't Clean Up 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: All- You-Can-Eat Café , and GoodGrub Diner
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