In the first period the monopolist has two choices: (i) maximize profits as in part (a);...

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In the first period the monopolist has two choices: (i) maximize profits as in part (a); or (ii) produce suboptimal q = 8 (what are profits then?) In the second round the monopolist faces different demand depending on his choice in round 1: (i) If the monopolist chose to maximize profit in round 1, then market demand remains P = 10-Q in the second round. (ii) If the monopolist chooses to overproduce according to the second strategy q = 8 in round 1, then in the second period market demand increases to p= 10- (demand becomes less elastic as the product become popular). Assuming that the monopolist wants to maximize total profits from both rounds = 1+₂, model this as a sequential (extensive-form) game and find the Subgame Perfect Equilibrium. In the first period the monopolist has two choices: (i) maximize profits as in part (a); or (ii) produce suboptimal q = 8 (what are profits then?) In the second round the monopolist faces different demand depending on his choice in round 1: (i) If the monopolist chose to maximize profit in round 1, then market demand remains P = 10-Q in the second round. (ii) If the monopolist chooses to overproduce according to the second strategy q = 8 in round 1, then in the second period market demand increases to p= 10- (demand becomes less elastic as the product become popular). Assuming that the monopolist wants to maximize total profits from both rounds = 1+₂, model this as a sequential (extensive-form) game and find the Subgame Perfect Equilibrium.

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Sequential Game and Subgame Perfect Equilibrium SPE Heres the extensiveform game and analysis for the monopolists decision Stage 1 Decision node Monop... View the full answer