3. There are two chicken fried steak restaurants operating in a small west Texas town: Cow Tipper Café and Steak to the Heart Diner. Once a month they have to send their new menus to the printer when they have to decide on whether or not to charge a high price or a low price for a chicken fried steak dinner. Once their menus are printed, they can't change their pricing. Since the two restaurants use separate printing companies, each restaurant's pricing decision remains secret until the printed menus are delivered. The payoff matrix for the restaurants is below; the first entry in each cell is Cow Tipper Café's daily profit and the second entry is Steak to the Heart Diner's daily profit. Cow Tipper Café High Price Low Price Steak to the Heart Diner Low Price High Price $500, $350 $375, $475 a. What market structure do these two firms operate in? Explain your answer. $350, $300 $450, $400 b. If Steak to the Heart Diner chooses a high price, what pricing option is better for Cow Tipper Café? c. What is Steak to the Heart Diner's dominant strategy? d. What is Cow Tipper Café's dominant strategy? e. If Steak to the Heart Diner and Cow Tipper Café have all of the information in the payoff matrix but do not collude, what will Steak to the Heart's daily profit be?
3. There are two chicken fried steak restaurants operating in a small west Texas town: Cow Tipper Café and Steak to the Heart Diner. Once a month they have to send their new menus to the printer when they have to decide on whether or not to charge a high price or a low price for a chicken fried steak dinner. Once their menus are printed, they can't change their pricing. Since the two restaurants use separate printing companies, each restaurant's pricing decision remains secret until the printed menus are delivered. The payoff matrix for the restaurants is below; the first entry in each cell is Cow Tipper Café's daily profit and the second entry is Steak to the Heart Diner's daily profit. Cow Tipper Café High Price Low Price Steak to the Heart Diner Low Price High Price $500, $350 $375, $475 a. What market structure do these two firms operate in? Explain your answer. $350, $300 $450, $400 b. If Steak to the Heart Diner chooses a high price, what pricing option is better for Cow Tipper Café? c. What is Steak to the Heart Diner's dominant strategy? d. What is Cow Tipper Café's dominant strategy? e. If Steak to the Heart Diner and Cow Tipper Café have all of the information in the payoff matrix but do not collude, what will Steak to the Heart's daily profit be?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. There are two chicken fried steak restaurants operating in a small west Texas town: Cow Tipper
Café and Steak to the Heart Diner. Once a month they have to send their new menus to the
printer when they have to decide on whether or not to charge a high price or a low price for a
chicken fried steak dinner. Once their menus are printed, they can't change their pricing. Since
the two restaurants use separate printing companies, each restaurant's pricing decision remains
secret until the printed menus are delivered. The payoff matrix for the restaurants is below; the
first entry in each cell is Cow Tipper Café's daily profit and the second entry is Steak to the
Heart Diner's daily profit.
Cow Tipper
Café
High Price
Low Price
Steak to the Heart Diner
Low Price
$350, $300
$450, $400
High Price
$500, $350
$375, $475
a. What market structure do these two firms operate in? Explain your answer.
b. If Steak to the Heart Diner chooses a high price, what pricing option is better for Cow Tipper
Café?
c. What is Steak to the Heart Diner's dominant strategy?
d. What is Cow Tipper Café's dominant strategy?
e. If Steak to the Heart Diner and Cow Tipper Café have all of the information in the payoff matrix
but do not collude, what will Steak to the Heart's daily profit be?
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