Use the information below to answer both MCQ 4 and MCQ 5.

Starbucks and Krispy Kreme are trying to decide whether or not to open a shop in the new Mall of Africa. They both prefer if the other firm opens a shop because they can draw bigger crowds but neither wants to be the only American-branded coffee shop in the Mall. The payoff matrix for this dilemma is below.

MCQ Question 4:
Find the Nash Equilibrium (Starbucks, Krispy Kreme) for the payoff matrix when the game is played simultaneously.

Group of answer choices:
A. (5,5) only.
B. (6,2) only.
C. (2,6) only.
D. (3,3) only.
E. There is no stable Nash Equilibrium.

To find the Nash Equilibrium for the given payoff matrix, we need to analyze the payoffs for each combination of strategies chosen by Starbucks and Krispy Kreme.

The payoff matrix is as follows:

Let's analyze each cell:

For the cell (Starbucks, Starbucks): The payoff is 5 for Starbucks and 5 for Krispy Kreme. Neither player has an incentive to deviate from this strategy.
For the cell (Starbucks, Krispy Kreme): The payoff is 2 for Starbucks and 6 for Krispy Kreme. Starbucks has an incentive to deviate and switch to Krispy Kreme.
For the cell (Krispy Kreme, Starbucks): The payoff is 6 for Starbucks and 2 for Krispy Kreme. Krispy Kreme has an incentive to deviate and switch to Starbucks.
For the cell (Krispy Kreme, Krispy Kreme): The payoff is 3 for both Starbucks and Krispy Kreme. Neither player has an incentive to deviate from this strategy.

Based on the analysis, the Nash Equilibrium is (5, 5) only, which means both Starbucks and Krispy Kreme will choose to open a shop in the Mall of Africa.

Learn more about nash equilibrium in a payoff matrix here:

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