Consider a good for which the per-period inverse- demand is p = v - Q. There are two periods andno discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the firstperiod. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where q₁ is its output inthe first period and λ € (0,2).a. Show that the incumbent will produce q₁ =11. Interpret it with respect to 1.2-λSuppose now that there is a potential entrant E that might enter in the second period. It hasmarginal production cost C = C₁ and no cost of entry. Because of the latter, for the sake ofclarity, suppose that the entrant always enters but may produce zero (in which case it does notenter de facto). The two firms compete in quantities.b. Find the equilibrium in the second period given some C₂.c. How does q₁ affect the incumbent's and entrant's profits in the second period?d. Find the equilibrium value of q₁. When is entry blockaded, deterred and accommodated,respectively?

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Consider a good for which the per-period inverse- demand is p = v – Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where q₁ is its output in the first period and λ € (0,2). 1-C₁

Consider a good for which the per-period inverse- demand is p = v – Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where q₁ is its output in the first period and λ € (0,2). 1-C₁

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 31P: Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as...

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