Question

The following table shows a game in normal form. Two fast-food restaurants must decide where to locate. The two possible locations—uptown and downtown—are not equally profitable. However, if both restaurants choose the same location, they split the profit from that location.

a. What is O'Donnell's best reply if Burger Queen chooses to locate uptown?

b. What is Burger Queen's best reply if O'Donnell's chooses to locate downtown?

Which of the following are Nash equilibria? Write "YES" or "NO" for each.

c. O'Donnell's locates uptown and Burger Queen locates uptown.

d. O'Donnell's locates uptown and Burger Queen locates downtown.

e. O'Donnell's locates downtown and Burger Queen locates uptown.

f. O'Donnell's locates downtown and Burger Queen locates downtown.

Burger Queen Locate uptown Locate downtown O'Donnell's gets $30,000 andODonnell's gets $60,000 and Burger Queen gets $30,000. Burger Queen gets $100 O'Donnell's gets $100,000 and O'Donnell's gets $50,000 and Locate O'Donnell's uptown Locate downtown Burger Queen gets $50,000

Answer 1

Locate uptown Locate uptown 30,000,30,000 60,000,100000) Locate downtown (100000,60000) 50,000, 50,000 thus (locate down town, locate uptown) and (locate uptown, locate down town) is equilibrium (a) if Niangu queen choose to locate uptown, best supply from 0' is locate down town b) locate uptown (Burger queen) d and e equilibrium