Microeconomics
11th Edition
ISBN: 9781260507041
Author: Colander, David
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 20.A, Problem 2QE
(a)
To determine
Construction of the payoff matrix.
(b)
To determine
Strategy advice, if the game is played once.
(c)
To determine
Strategy advice, if game is played many times.
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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 $14,000; alternatively, if they both hire workers to clean, each will earn only $11,000. 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 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
$4
2$
24
2$
All-You-Can-Eat Café
Doesn't Clean Up…
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 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
,
,…
Acme and Tartine are identical bakeries and are the only suppliers of baguettes in San Francisco. They have agreed to form a cartel: they jointly sell Q=16 baguettes and charge p=9 . Each bakery shall produce half of the joint quantity. Acme is tempted to cheat on the cartel agreement and increase its own production by 2 units. Acme knows that if they cheat, there is a 50% chance Tartine will catch them and force them to pay a fine of F that is taken out from their profits. If the market demand curve is Q=34−2P and the marginal cost of producing baguettes is constant and equal to 1 (assume there are no fixed costs), how big does F have to be to make Acme indifferent between cheating and not?
F=?
Chapter 20 Solutions
Microeconomics
Ch. 20.1 - Prob. 1QCh. 20.1 - Prob. 2QCh. 20.1 - Prob. 3QCh. 20.1 - Prob. 4QCh. 20.1 - Prob. 5QCh. 20.1 - Prob. 6QCh. 20.1 - Prob. 7QCh. 20.1 - Prob. 8QCh. 20.1 - Prob. 9QCh. 20.1 - Prob. 10Q
Ch. 20.A - Netflix and Hulu each expects profit to rise by...Ch. 20.A - Prob. 2QECh. 20 - Prob. 1QECh. 20 - Prob. 2QECh. 20 - Prob. 3QECh. 20 - Prob. 4QECh. 20 - Prob. 5QECh. 20 - Prob. 6QECh. 20 - Prob. 7QECh. 20 - Prob. 8QECh. 20 - Prob. 9QECh. 20 - Prob. 10QECh. 20 - Prob. 11QECh. 20 - Prob. 12QECh. 20 - Prob. 13QECh. 20 - Prob. 14QECh. 20 - Prob. 15QECh. 20 - Prob. 16QECh. 20 - Prob. 1QAPCh. 20 - Prob. 2QAPCh. 20 - Prob. 3QAPCh. 20 - Prob. 4QAPCh. 20 - Prob. 5QAPCh. 20 - Prob. 6QAPCh. 20 - Prob. 1IPCh. 20 - Prob. 2IPCh. 20 - Prob. 3IPCh. 20 - Prob. 4IPCh. 20 - Prob. 5IPCh. 20 - Prob. 6IPCh. 20 - Prob. 7IP
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