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Consider a remote town in which two restaurants, All-You-Can-Eat Caf and GoodGrub Diner, operate in a duopoly.

This question was answered on May 06, 2010. View the Answer
Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub 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 $8,000; alternatively, if they both hire workers to clean, each will earn only $5,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $12,000, and the other restaurant will make only $3,000.

5.3. When the oligopolists (duopolists) expect to compete with each other over an extended period of time, each restaurant chooses to be "nice" and follow a strategy that raises the profits of the other restaurant, expecting the other restaurant to return the favor.

This is an example of:



A. Perfect competition

B. Tacit collusion

C. A non-cooperative Nash equilibrium

D. A prisoners' dilemma



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================================================================= Consider a remote town in which two restaurants, All-You-Can-Eat Café and
Good Grub Diner, operate in a duopoly. Both restaurants...

This question was asked on May 06, 2010 and answered on May 06, 2010.

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