LuLu Restaurant (LR) and Lucy Café (LC) have an implicit agreement to keep prices high so that both can earn $30,000 profit a year. Below is their complete payoff matrix in terms of thousands of dollars of profit per year and strategic actions a and b. LR’s payoffs are the left and LC’s are on the right. However, in 2014 new owner/managers have taken over both LR and LC and have to decide whether to abide by the implicit agreement or to cheat.         LC           a b       LR a 30, 30 25,32         b 32, 25 26, 26     What strategy will each firm choose and what will be its profit? Is this a Nash equilibrium? Why or why not? Would it be worth it for these new owners/managers to find reach an accommodation and go back to the old implicit agreement? Would this be a Nash equilibrium? Why or why not? Is this game a prisoner’s dilemma? Why or why not?

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