Consider a remote town in which two restaurants, All You Can-Eat Café and GoodGr
ID: 1125552 • Letter: C
Question
Consider a remote town in which two restaurants, All You Can-Eat Café and GoodGrub Dine 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 thet they will have to pay workers to do the cleaning. It neither restaurant cleans, each will earm $12,000; alternatively, if they both hire workers to clean, each will earnm only $9,000. However, if one cleans and the other doesnt, more customers will choose the cleaner restaurant; the cleaner restaurant will make $16,000, and the other restaurant wi make only $4,000 Complete the following payolt matrix using the information Just given (Note: Al-You-Can-Eat Café and GoodGrub Diner are both profit-maximazing GeodGrub Diner Cleans Up Doeut Clean Up A-You-Can-Eat Café and GoodGrub Diner decide to collude, the outcome of this game is as follows: All-You-Can-Eat Caé GoodGrub diner and f both restaurants ou-Can-Eat Cafe deoide to cheat and behave noncooperatively, the outcome reflecting the unique Nash equlibrium of this game is as follows: A ,and GoodGrub Diner 8 commandExplanation / Answer
goodgrub diner
clean up does not clean up
clean up (9000;9000)-nash eqv (16000; 4000)
all you can eat cafe does not clean up (4000;16000) (12000; 12000)- collusion outcome
b.) if they behave non cooperatively then the unique nash equilibrium of this game would be that both would decide to clean up.
we see that whether goodgrub decides to clean up or not the best strategy for all you can eat cafe would always be to clean up as in that case its payoff is high as compared to not clean up(shown by underline beneath the payoff of all you can eat cafe).
similarly , whether or not all you can eat decides to clean up or not the best strategy for goodgrub is to clean up as its payoff would be high in that case (shown by underline beneath the payoff of goodgrub)
thus we see that we get two underlines when both decides to clean up , which is unique nash equilibrium when they do not cooperate.
a.) when both decides to colude then the outcome of the game would be that both decides not to clean up as in that case they both can earn more than what they can earn if they do not cooperate (12000>9000). thus we say that not clean up strategy is pareto superior to clean up strategy .