what is the correct answer and the reason for it. 5. Consider the entry-deterrence game below. The potential entrant moves first and would have to spendsome amount in sunk costs to enter the market. In this game, the Incumbent Monopoly hasa.b.C.d.e.an incentive to threaten high prices, which is credible.an incentive to threaten low prices, which is credible.an incentive to threaten high prices, which isn't credible.an incentive to threaten low prices, which isn't credible.no incentive to make a threat.IncumbentMonopolyHighPricesLowPricesEntrantEnterMarket30, 618,-6StayOut60,024,0

Nash equilibrium refers to the situation in which each player in a game is making the best decision…

Answered: 5. Consider the entry-deterrence game…

5. Consider the entry-deterrence game below. The potential entrant moves first and would have to spend some amount in sunk costs to enter the market. In this game, the Incumbent Monopoly has

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Monopolistic Competition

Section: Chapter Questions

Problem 4QCMC

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Question

what is the correct answer and the reason for it.

5. Consider the entry-deterrence game below. The potential entrant moves first and would have to spend
some amount in sunk costs to enter the market. In this game, the Incumbent Monopoly has
a.
b.
C.
d.
e.
an incentive to threaten high prices, which is credible.
an incentive to threaten low prices, which is credible.
an incentive to threaten high prices, which isn't credible.
an incentive to threaten low prices, which isn't credible.
no incentive to make a threat.
Incumbent
Monopoly
High
Prices
Low
Prices
Entrant
Enter
Market
30, 6
18,-6
Stay
Out
60,0
24,0

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