Question: Question 3 (20 points) Consider a Cournot model with entry cost and let the inverse aggregate demand function be P(Q) - 15 - 3Q, where

Question 3 (20 points) Consider a Cournot model with entry cost and let the inverse aggregate demand function be P(Q) - 15 - 3Q, where Q is aggregate output. Suppose that firms produce an homogeneous output and that the unit cost of production is c = 3. In addition, supposes that there is an entry cost F > 0. [20%] (a) Let NV be the number of firms. Find the amount that each firm will produce in equilibrium, the equilibrium price and profit. [10%] (b) What is the value of NV in equilibrium? [3%] (c) Show that the Lerner index is an increasing function of F' and interpret the result. [7%]

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