Question

In Promaine Flats, Nevada there were two restaurants: Sal Monella and Road Kill Café. Current profit is $7,000 each. Cleaning will attract more customers, but profit will reduce to $5,000 each. However, if one cleans up and other doesn’t then profit will be $12,000 and $3,000.

1. Complete the payoff matrix below.

   

2.  What is each players dominant strategy? Explain

          3. What is the outcome of the game? Explain

Answer 1

1)

		Sal Monella
		Cleaning	No Cleaning
Road Kill Café	Cleaning	(5000, 5000)	(12000, 3000)
No Cleaning	(3000, 12000)	(7000, 7000)

2) If Road kill cafe opt for cleaning, Sal Monella will also clean as their profit from cleaning is 5,000 among 5,000 and 3,000.

If Road kill cafe opt for no cleaning, Sal Monella will clean as their profit from cleaning is 12,000 among 12,000 and 7,000.

Thus, dominant strategy of Sal Monella is cleaning no matter what Road Kill Cafe do.

If Sal Monella opt for cleaning, Road Kill cafe will also clean as their profit from cleaning is 5,000 among 5,000 and 3,000.

If Sal Monella opt for no cleaning, Road kill cafe will clean as their profit from cleaning is 12,000 among 12,000 and 7,000.

Thus, dominant strategy of Road kill cafe is cleaning no matter what Sal Monella do.

3) As both of them have dominant strategy by cleaning, there occurs a Nash equilibrium when both of them clean.