3. An incumbent firm, Firm 1, faces a potential entrant, Firm 2, that has a lowermarginal cost. The market demand curve is p =120 – 91 - 92. Firm 1 has a constantmarginal cost of $20, while Firm 2's is $10.a) What are the NE quantities, price, and profits if there is no government intervention.b) To block entry, the incumbent appeals to the government to require that the entrantincur extra costs. What happens to the equilibrium if the legal requirement causes themarginal cost of the second firm to rise to that of the first firm, $20?c) Now suppose that the barrier leaves the marginal cost unchanged, but imposes afixed cost. The incumbent keeps its strategy from a). What is the minimal fixed cost that1will prevent entry?

Let there are two firms in the market, firm 1 and firm 2. Firm 1 faces a potential entrant, on the…

Vhat are the NE quantities, price, and profits if there is no government intervention. o block entry, the incumbent appeals to the government to require that the entrant xtra costs. What happens to the equilibrium if the legal requirement causes the al cost of the second firm to rise to that of the first firm, $20? Jow suppose that the barrier leaves the marginal cost unchanged, but imposes a st. The incumbent keeps its strategy from a). What is the minimal fixed cost that 1

Vhat are the NE quantities, price, and profits if there is no government intervention. o block entry, the incumbent appeals to the government to require that the entrant xtra costs. What happens to the equilibrium if the legal requirement causes the al cost of the second firm to rise to that of the first firm, $20? Jow suppose that the barrier leaves the marginal cost unchanged, but imposes a st. The incumbent keeps its strategy from a). What is the minimal fixed cost that 1

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 10MC: You are considering entry into a market in which there is currently only one producer (incumbent)....

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