Question 5 (16 marks) Consider two firms, A and B, where firm A is a potential entrant and firm B is the incumbent in the industry. They play the following sequential game: First firm A decides whether to enter (E) or to not enter (N), and then firm B decides whether to produce high (H) or low (L) output. The payoffs from the game are given in the game tree below. The number before the comma is the payoff of firm A and the number after the comma is the payoff of firm B. Answer the questions using the information of the game.

a. Should firm B produce high (H) or low (L) if firm A enters (E) the market? Why? (5 marks)

b. Should firm B produce high (H) or low (L) if firm A does not enter (N) the market? Why? (5 marks)

c. Should firm A enter the market? Why? (6 marks)

Question 5 (16 marks) Consider two rms, A and B, where rm A is a potential entrant and rm B is the incumbent in the industry. They play the following sequential game: First rm A decides whether to enter (E) or to not enter (N), and then rm B decides whether to produce high (H) or low (L) output. The payoffs 'om the game are given in the game tree below. The number before the comma is the payoff of rm A and the number after the comma is the payoff of rm B. Answer the questions using the information of the game. 2,5 6,6 0,12 0,8 a. Should rm B produce high (H) or low (L) if rm A enters (E) the market? Why? (5 marks) b. Should rm B produce high (H) or low (L) if rm A does not enter (N) the market? Why? (5 marks) 0. Should rm A enter the market? Why? (6 marks)