Consider the McDonald's and Burger King entry game from the game theory lecture: Burger King McDonald's...

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Consider the McDonald's and Burger King entry game from the game theory lecture: Burger King McDonald's Stay out Enter Stay out (0,0) (?,0) Enter (0,?) (?, ?) The market where McDonald's and Burger King want to enter can be described as a 1-mile long road. McDonald's has a potential location at the beginning of this road (i.e. yM = 0), while Burger King has a potential location on the other end (i.e. yg = 1). There are 1,000 consumers in this market, uniformly located along this line. Assume that both firms have the same marginal cost MCM MCB = $5, and that consumers value burgers from either joint at V = $10. Travel costs along the road are t = $1. 1. Suppose both firms enter. Write down the demand functions of McDonald's and Burger King as a function of the prices of both firms. 2. Using the demand functions from part 1., solve for the equilibrium price, quantity and profits when both firms enter. 3. Assume that if only one firm entered, it would earn a profit of $1,500 by acting as a monopolist (not including fixed cost). Let F denote the fixed cost that each firm has to pay in order to enter the market. Fill in the values of the payoff matrix above. For what values of F does the game have a unique Nash equilibrium? Consider the McDonald's and Burger King entry game from the game theory lecture: Burger King McDonald's Stay out Enter Stay out (0,0) (?,0) Enter (0,?) (?, ?) The market where McDonald's and Burger King want to enter can be described as a 1-mile long road. McDonald's has a potential location at the beginning of this road (i.e. yM = 0), while Burger King has a potential location on the other end (i.e. yg = 1). There are 1,000 consumers in this market, uniformly located along this line. Assume that both firms have the same marginal cost MCM MCB = $5, and that consumers value burgers from either joint at V = $10. Travel costs along the road are t = $1. 1. Suppose both firms enter. Write down the demand functions of McDonald's and Burger King as a function of the prices of both firms. 2. Using the demand functions from part 1., solve for the equilibrium price, quantity and profits when both firms enter. 3. Assume that if only one firm entered, it would earn a profit of $1,500 by acting as a monopolist (not including fixed cost). Let F denote the fixed cost that each firm has to pay in order to enter the market. Fill in the values of the payoff matrix above. For what values of F does the game have a unique Nash equilibrium?

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ANSWER 1 McDonalds demand function Pg t MCM Burger Kings demand function Pg t MCB 2 ... View the full answer