Question: Question 2. Entry Game. (15 marks) Consider the following entry game: There are two periods: Firm / is in the market for both periods, and

Question 2. Entry Game. (15 marks) Consider the following entry game: There are two periods: Firm / is in the market for both periods, and Firm E decides to enter or not in the second period. Market demand is P = 140 - Q. Each firm has fixed costs of $1200 and marginal cost MC = $20. Suppose in period 1, I has two strategies: set the price at Pm = $80 (monopoly price), or at P =$40 (limit price). After seeing the price set by / in the first period, E decides to enter the market or not (In or Out). If E chooses Out, then / selects Pm in the second period. If E chooses In, then I as a price leader can decide whether the market price is P or P. = 60 (Cournot price), and demand is shared equally between the two firms. Draw a game tree and find the SPNE of the game

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