Question

Suppose there are two breakfast restaurants in your college town, Waffle Kingdom and Flip's Flapjacks, and they decide to operate collusively as a cartel. If both restaurants abide by the cartel's agreement, each will earn $80000 in profit. If both restaurants cheat on the cartel's agreement, both will earn $15000 in profit. If one restaurant cheats and the other abides by the agreement, the cheater will earn a profit of $120000, while the restaurant that abides will have a loss of $7500. The most profitable combined outcome for the two restaurants would be:____________

a. for both restaurants to abide by the cartel’s agreement.
b. for both restaurants to cheat on the cartel’s agreement.
c. for Waffle Kingdom to cheat on the agreement and Flip’s Flapjacks to abide by the agreement.
d. There is not a profitable outcome for both restaurants.

Answer 1

a. for both restaurants to abide by the cartel’s agreement.

Step-by-step explanation:

As per the given situation, the most profitable outcome i.e. combined for the two restaurants is that the both restaurant should be abide via cartel agreement as in the both cases the earnings is $80,000 so this represent the most profitable condition for these two restaurants

Hence, the option a is correct

And, the rest of the options are wrong