Boost 12:57 PM 36% courses.aplia.com raded Assignment | Read Chapter 10 | Back t

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Boost 12:57 PM 36% courses.aplia.com raded Assignment | Read Chapter 10 | Back to Assignment 10, Cellusive eutcome versus Nash equilariun 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 $13,000; alternatively, if they both hire workers to clean, each will earn only $10,000. 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.) 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 and GoodGrub Diner 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

Explanation / Answer

If we Put the information in a pay off matrix, the following matrix can be drawn,

Now if both resturants decide to collude, they will reach at a outcome, where none of them are worse off. So, considering the matrix, All you can eat cafe is better of by playing Doesn’t clean up(18,000) in left column. In right column,  All you can eat cafe will be better off by also choosing Doesn’t clean up ( 13,000).

Now, considering the matrix, Good Grub Dinner cafe will be better off by choosing Doesn’t clean up(18,000) in top row. In down row, Good Grub Dinner cafe will be better off by choosing Doesn’t clean up(13,000).

So both players are better off by choosing Doesn't clean up, if they decide to collude. so both restaurant will choose doesn't clean up (13000,13000) , as there Nash equilibrium exists.

Now, if they decide to cheat and behave non cooperatively, Both will clean their restaurant to attract more customer earn more than the other. In this case they both will choose to play the game to clean up the restaurant. So in this case the nash equilibrium will exist in (10000,10000) pay off.

Good Grub Dinner Good Grub Dinner Cleans up Doesn’t clean up All you can eat cafe Cleans up 10000,10000 6000,18000 All you can eat cafe Doesn’t clean up 18000,6000 13000,13000

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