Plz answer a and b = 10 – q. There are infinitely many firms that could enterConsider a market with demand p(g)this market, numbered i = 1, 2,..., o. The game proceeds in two stages.1 The firms simultaneously decide whether to enter the market or not. At the end of thisstage, all firms observe which firms entered.2 The firms that entered simultaneously choose their quantities.Each firm that enters must pay a fixed entry cost of F = 2. Each firm that enters then may produceany quantity at zero cost. The firms' products are all identical.We will find a subgame perfect equilibrium in this game using backward induction.a) Suppose that a finite number N< o has entered, and now stage 2 starts. Firm i is one ofthe firms that has entered. If it knows that the other firms that have entered will produceq-i (a vector of N-1 quantities), what is its best response?b) Considering only stage 2, find a symmetric Nash equilibrium among the N firms that en-tered.c) In the Nash equilibrium you found above, what are the post-entry profits of each individualfirm that entered, as a function of N?d) Now consider stage 1. Suppose every firm knows that if N firms enter in stage 1, then instage 2 those firms will play the Nash equilibrium you characterized above. Also supposeevery firm knows that Firms 1 through N* will enter, and Firms N* +1 through oo will notenter. If every firm is making an optimal entry decision, what is N*?

Consider a market with demand p(q) = 10 - q. There are infinitely many firms that could enter this market, numbered i = 1, 2,..., o. The game proceeds in two stages. 1 The firms simultaneously decide whether to enter the market or not. At the end of this stage, all firms observe which firms entered. 2 The firms that entered simultaneously choose their quantities. Each firm that enters must pay a fixed entry cost of F = 2. Each firm that enters then may produce any quantity at zero cost. The firms' products are all identical. We will find a subgame perfect equilibrium in this game using backward induction.

Consider a market with demand p(q) = 10 - q. There are infinitely many firms that could enter this market, numbered i = 1, 2,..., o. The game proceeds in two stages. 1 The firms simultaneously decide whether to enter the market or not. At the end of this stage, all firms observe which firms entered. 2 The firms that entered simultaneously choose their quantities. Each firm that enters must pay a fixed entry cost of F = 2. Each firm that enters then may produce any quantity at zero cost. The firms' products are all identical. We will find a subgame perfect equilibrium in this game using backward induction.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.5P

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