PS12(09) - ECN 712 Fall 2009 Professor Schlee Problem Set...

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Unformatted text preview: ECN 712 Fall 2009 Professor Schlee Problem Set XII, Due 1 December 1. Entry . Consider the following two-stage entry game with two firms. • In the first stage, the firms simultaneously decide whether or not to enter a market “ I ” for IN, “O” for OUT). If a firm chooses I , it pays a setup cost of K > 0; if it chooses O , then it has nothing further to choose and its profit is zero. • In the second stage, the firms observe the entry decisions made at the first stage; any firms that have entered play a simultaneous-move game, either Bertrand or Cournot. (If only one of the two firms enters, then of course that firm is a monopolist.) The only cost that a firm has is the setup cost K (incurred in the first stage if it chose I ): the second stage production cost is 0. The market demand for the good is given by q = max { a- p, } , for p ≥ 0, where a > 0, so that the monopoly output and price are both equal to a/ 2. Assume that 0 < K < a 2 / 9 (= the second stage profit each firm gets in the...
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This note was uploaded on 11/19/2010 for the course ECON 202 taught by Professor Schlee during the Spring '10 term at ASU.

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