Suppose Eckerd Pharmacy is the only pharmacy in a particular market, but CVS Pharmacy is thinking about entering the market. Absent entry, Eckerd Pharmacy can maximize profits by producing a small quantity. However, by producing a large quantity, Eckerd Pharmacy can attempt to deter entry by reducing prices and, consequently, profits. Enter E: $47 C: $47 Eckerd Pharmacy must choose how much to produce first and then cVS Pharmacy will choose whether to enter the industry. The strategies and corresponding profits for Eckerd (E) and cVS Pharmacy (C) are depicted in the decision tree to the right. What is the Nash equilibrium of the game? Small Quantity E: $85 C: $0 Stay Out! O A. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will not enter. Enter E: $0 C: -$10 Large Quantity O B. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will not enter. E: $65 OC. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will Stay Out C: $0 enter. O D. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will enter.

Suppose Eckerd Pharmacy is the only pharmacy in a particular market, but CVS Pharmacy is thinking about entering the market. Absent entry, Eckerd Pharmacy can maximize profits by producing a small quantity. However, by producing a large quantity, Eckerd Pharmacy can attempt to deter entry by reducing prices and, consequently, profits. Enter E: $47 C: $47 Eckerd Pharmacy must choose how much to produce first and then cVS Pharmacy will choose whether to enter the industry. The strategies and corresponding profits for Eckerd (E) and cVS Pharmacy (C) are depicted in the decision tree to the right. What is the Nash equilibrium of the game? Small Quantity E: $85 C: $0 Stay Out! O A. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will not enter. Enter E: $0 C: -$10 Large Quantity O B. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will not enter. E: $65 OC. Eckerd Pharmacy will choose the large quantity and CVS Pharmacy will Stay Out C: $0 enter. O D. Eckerd Pharmacy will choose the small quantity and CVS Pharmacy will enter.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: Monopoly

Section: Chapter Questions

Problem 10PA

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