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Consider a remote town in which two restaurants, AllYouCanEat Caf and Good Diner operate in a duopoly Both restaurants ignore the health code, 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 have to pay workers to do the cleaning.
If both restaurants do not clean, each will earn $8000 alternatively, if they both hire workers to clean, each will earn only $5000 However if one cleans and the other doesnt more customers will choose the cleaner restaurant; the cleaner restaurant will make $12000 and the other restaurant will make only $3,000 If the two restaurants do not collude, what is the Nash equilibrium of this game?
AllYouCanEat Caf does not clean but Good Diner cleans AllYouCanEat Caf cleans & Good Diner cleans.
AllYouCanEat Caf cleans but Good Diner does not clean
AllYouCanEat Caf does not clean, and Good Diner does not clean

2007-11-10 11:01:17 · 1 answers · asked by Anonymous in Social Science Economics

1 answers

Equilibrium =AllYouCanEat Caf cleans & Good Diner cleans.
If A cleans G will be better off cleaning
If A does not cleans G will be better off cleaning
So G will clean no matter what A does and the same argument will cause A to clean,

2007-11-10 11:44:06 · answer #1 · answered by meg 7 · 0 0

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