Determine the optimal strategy for the situation by represen

Determine the optimal strategy for the situation by representing it as a game and finding the saddle point. State your final answer in the terms of the original question. In an ongoing price war between Burger Haven (locally owned) and MacArches (a chain), both restaurant managers plan to change the price of a hamburger by 10c. If they both raise their prices, there will be no change in their market shares, but if they both lower their prices, the chain\'s national advertising will ensure that MacArches gains 3% of the market. Again because of advertising, if Burger Haven lowers their price and MacArches raises their price, Burger Haven will gain only 2% of the market, but if Burger Haven raises their price and MacArches lowers their price, MacArches will gain 5% of the market. Use this information to decide what the managers should do. Burger Haven {L R (% % % %) What does L represent? L represents lowering the price by 10. L represents raising the price by 10. What does R represent? R represents lowering the price by 10. R represents raising the price by 10. The saddle point is the in row and column .

Solution

L represents lowering the price by 10C

R represents raising the price by 10C

The saddle point is minimum in row and maximum in column

Hence saddle point is : 0.02 that is in first row and second column

The optimal strategy is therefore that Burger Haven lowers the price and MacArch raises the price

	Mac Arches
Burger Haven	0.03	0.02
	0.05	0