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Consider a simultaneous move game between two movie theaters - Cinema World (CW) and Movie Land (ML). Each year, the theaters must decide whether to
Consider a simultaneous move game between two movie theaters - Cinema World (CW) and Movie Land (ML). Each year, the theaters must decide whether to invest in remodeling their spaces. The total market share is worth $12 million. Remodeling costs a theater $1 million. If they both choose the same strategy, they split the market equally (and each pay the associated cost, if any). If only one theater remodels that theater gets the entire market share. So, for example, if both remodel, they each get $5 million (half the market share ($6 million), minus the cost of remodeling ($1 million)). Draw this game in the normal form with CW as the row player and ML as the column player. Find the Nash equilibrium. Is the Nash equilibrium Pareto efficient? Explain. (2 pts.)
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