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Question 2.

Harvest and The Keg are restaurants in Tucson. They each are simultaneously considering adding Live Music as a way to expand their profits. The game chart below shows the expected stream of profits (in thousands of dollars) for each firm based on whether or not they add and/or their competitor adds Live Music.


a. (10 points) Harvest and The Keg move simultaneously. Describe the Nash equilibrium(s) that will result. Make sure to explain in depth why the equilibrium(s) exist.

b. (10 points) What would be the Nash equilibrium(s) if The Keg moved first and then Harvest moved second? Explain your choice.

c. (10 points) What is the definition of a prisoner's dilemma? Would the situation in part a be considered a prisoners' dilemma. If it is, explain why it fits the definition of a prisoners' dilemma. If it is not, change the numbers in such a way that it becomes a prisoners' dilemma and explain why it now fits the definition.

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The Keg Harvest Add Live Music No Live Music Add Live Music $210, $220 $250, $200 No Live Music $135, $170 $215, $230

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The Keg Harvest Add Live Music No Live Music Add Live Music $210, $220 $250, $200 No Live Music $135, $170 $215, $230
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