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 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 .

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 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 .

This image presents a payoff matrix for two establishments: All-You-Can-Eat Café and GoodGrub Diner. It illustrates the potential financial outcomes based on whether each establishment decides to "Clean Up" or "Doesn't Clean Up."

### Matrix Structure:

**Rows (All-You-Can-Eat Café Options):**
- **Cleans Up**
- **Doesn’t Clean Up**

**Columns (GoodGrub Diner Options):**
- **Cleans Up**
- **Doesn't Clean Up**

### Cells:
Each cell within the matrix consists of two boxes, representing potential monetary outcomes (in dollars) for both entities under the different strategic combinations. The specific amounts are not filled in this diagram.

- **Top Left Cell**: Represents the scenario where both establishments choose to clean up.
- **Top Right Cell**: Depicts the outcome when the All-You-Can-Eat Café cleans up while GoodGrub Diner does not.
- **Bottom Left Cell**: Illustrates the result if GoodGrub Diner cleans up and the All-You-Can-Eat Café does not.
- **Bottom Right Cell**: Reflects a situation where neither establishment cleans up.

This type of matrix is often used in game theory to determine optimal strategies within competitive environments.

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