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 $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 $4,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up Cleans Up %2$ 24 24 All-You-Can-Eat Café Doesn't Clean Up 24 24 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
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 $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 $4,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up Cleans Up %2$ 24 24 All-You-Can-Eat Café Doesn't Clean Up 24 24 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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**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 $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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.)**
| | **GoodGrub Diner** |
|----------------------------------|---------------------|
| | **Cleans Up** | **Doesn't Clean Up** |
| **All-You-Can-Eat Café** | | |
| **Cleans Up** | \[\$\] [ ], [ ] | \[\$\] [ ], [ ] |
| **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 [Dropdown] and GoodGrub Diner [Dropdown].
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 [Dropdown], and GoodGrub Diner [Dropdown].](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F73360e59-5edd-486f-ad18-bddf56b16620%2Fdd52fd7b-0697-4a1c-b638-d9f0f85adfaa%2F5q465mr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**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 $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 information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.)**
| | **GoodGrub Diner** |
|----------------------------------|---------------------|
| | **Cleans Up** | **Doesn't Clean Up** |
| **All-You-Can-Eat Café** | | |
| **Cleans Up** | \[\$\] [ ], [ ] | \[\$\] [ ], [ ] |
| **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 [Dropdown] and GoodGrub Diner [Dropdown].
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 [Dropdown], and GoodGrub Diner [Dropdown].
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