part C D 2. Consider the following Stackelberg model with 2 firms. Let firm 1 be the incumbent and firm2 the potential market entrant.• Incumbent firm faces a marginal cost of c = 4.• Potential entrant faces a marginal cost of c = 2 and entry cost F.• The market demand curve is P = 12 – Q.• The incumbent decides q first, then the potential entrant decides q2. 92 = 0 if firm 2decides not to enter.(a) What is the incumbent firm's monopoly price, quantity and profit?(b) Suppose F = 0. What are the equilibrium quantities and profits for both firms? What isthe equilibrium price?(c) For which values of F is firm 2's entry into the market blockaded, accommodated orpreyed upon? When firm 2's entry is preyed upon, which quantity, q1, does firm 1 use todissuade firm 2 from entering?(d) Suppose that now F = 0 naturally. That is, there no is barrier to entry for firm 2.However, now suppose the firm 1 can spend r on creating artificial barriers to entry. Forexample, x may be the cost of litigation over extending expiring patents. LetF(x) = a x x be the fixed entry cost for firm 2 when firm 1 spends r. For which valuesof a does firm 1 prevent firm 2's entry?

The Stackelberg leadership model basically refers to an economics strategic game in which the leader…

2. Consider the following Stackelberg model with 2 firms. Let firm 1 be the incumbent and firm 2 the potential market entrant. • Incumbent firm faces a marginal cost of c = 4. • Potential entrant faces a marginal cost of c = 2 and entry cost F. • The market demand curve is P = 12 - Q. • The incumbent decides q₁ first, then the potential entrant decides q2- 92 = 0 if firm 2 decides not to enter.

2. Consider the following Stackelberg model with 2 firms. Let firm 1 be the incumbent and firm 2 the potential market entrant. • Incumbent firm faces a marginal cost of c = 4. • Potential entrant faces a marginal cost of c = 2 and entry cost F. • The market demand curve is P = 12 - Q. • The incumbent decides q₁ first, then the potential entrant decides q2- 92 = 0 if firm 2 decides not to enter.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

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