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Consider a remote town in which two restaurants, All-You-Can-Eat Cafe and GoodGrub Bistro, operate in a duopoly. Both restaurants ignore the health code, but theycontinue to have customers because they are the only restaurants within 80 kilometres of town. Both restaurants know that if they clean up, they will attract morecustomers, 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 euros; alternatively, if they both hire workers to clean, each will earn only 5,000 euros. However, if onecleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make 12,000 euros, and the other restaurant will make only3,000 euros.

3.1. If All-You-Can-Eat Cafe and GoodGrub Bistro decide to collude, what is the outcome of this game?
A. All-You-Can-Eat Cafe cleans, and GoodGrub Bistrot cleans.

B. All-You-Can-Eat Cafe does not clean, but GoodGrub Bistro cleans.

C. All-You-Can-Eat Cafe cleans, but GoodGrub Bistro does not clean.

D. All-You-Can-Eat Cafe does not clean, and GoodGrub Bistro does not clean.

3.2. If both restaurants decide to cheat and behave non-cooperatively, what is the Nash equilibrium of this game?

A. All-You-Can-Eat Cafe does not clean, and GoodGrub Bistro does not clean.

B. All-You-Can-Eat Cafe does not clean, but GoodGrub Bistro cleans.

C. All-You-Can-Eat Cafe cleans, and GoodGrub Bistro cleans.

D. All-You-Can-Eat Cafe cleans, but GoodGrub Bistro does not clean.
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