b) Structured question (two examples offered, one alternative to the other) 1) A market demand is characterized by a demand function: Q: 1 -2P In the market there's only one rm. The marginal cost it faces for production is constant and equal to c. The monopolist is facing potential entry orn a new rm having the same marginal cost but an additional xed cost of entry F = 0.05. For the sake of simplicity assume 0 = t}, and that the total cost function of the incumbent rm is equal to zero (TC = 0). If the incumbent accepts the entry passively, then Cournot competition is played. However, the monopolist can adopt an aggressive behaviour and threaten to produce the output of perfect competition (P=MC} so that the new entrant will make losses if it enters into the market. If the new entrant does not enter, the incumbent behaves as a monopolist. 1. Using extensive form (game tree} representation, describe this entry game as a two-stage game where in the rst stage the new entrant decides whether to enter or not, and in the second stage the incumbent rm decides whether to be aggessive or not in case of entry. 2. Is the threat of aggressive behaviour by the monopolist credible? 3- Determine the subgame perfect Nash equilibrium