Describe a dominant strategy. assuming that the game

Reference no: EM133377137

Question 1. Two Italian restaurants A and B, compete by price. Each restaurant can choose either a low price or a high price per dish. Resulting profits (in thousands of dollars) per month are given by the following payoff matrix.

	Restaurant B
		Low Price	High Price
Restaurant A	Low Price	$200 $500	$600 $600
Restaurant A	High Price	$0 $1,100	$400 $1,000

a. Describe a dominant strategy. Assuming that the game described above is a one-shot simultaneous game, does Restaurant A have a dominant strategy in the game? If yes, what is it? Why? If not, why not? (8 pts)

b. Assuming that the game described above is a one-shot simultaneous game, does Restaurant B have a dominant strategy in the game? If yes, what is it? Why? If not, why not? (5 pts)

c. What is the likely outcome, if any, for this pricing game? Explain why. (8 pts)

d. Describe the notion of Nash equilibrium. Is the likely outcome (your answer to part c) a Nash equilibrium? Why or why not. (8 pts)

e. Does the Nash equilibrium outcome maximize the joint profits of the two restaurants? If yes, why? If not, why not? what other strategies maximizes the joint profits of the restaurants? Is it possible for the restaurants to agree to adopt the strategies that result in such outcome? Explain.

Reference no: EM133377137

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