Suppose there is a small town with two high-end restaurants. Suppose additionally that a major convention is coming to town. The restaurants are deciding whether to create print advertising to distribute at the convention in.order.to advertise their restaurant. • If they both advertise, the advertising will cancel and both restaurants will get the same amount of business as if they had not advertised, so the advertising expense will have been wasted, • If they both choose not to advertise, they will save the cost of advertising. • If one advertises and the other does not, the advertising restaurant will pull business away from its competitor and will end up with higher revenue. The payoff matrix is below.

A small town has a duopoly in its tattoo market.  Two firms, "Thread the Needle" and "Ink about it" are both competitors.  Daily profit is listed in the payoff matrix.  The green payouts belong to "Thread the Needle" and the red, "Ink about it". Why does the outcome where they both advertise yield the same profits for both firms than if they didn't advertise?     A because advertising doesn't actually work B because advertising increases the average total costs and negatively impact total profit C because one firm is larger than the other firm D because of a collusive agreement between the firms

8. Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $13,000; alternatively, if they both hire workers to clean, each will earn only $10,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) All-You-Can-Eat Café Cleans Up Doesn't Clean Up $ GoodGrub…

4. Farmer Andy and Farmer Betty are the only two farmers that grow heirloom tomatoes for sale at the local farmer's market and compete as Cournot duopolists. The inverse demand curve for heirloom tomatoes at the market is P = 140 - 5Q where P is the %3D price per pound of tomatoes and Q is the number of pounds of tomatoes in hundreds per week; Q = qA + qB. Both Andy and Betty have a cost of growing tomatoes of w = 10, r = 20, and both have K = 1 in the short run. They both have a production function of q = L0.5KO.5. They will both earn profits of --.