Suppose in a two-period model Firm 1 is a monopolist in the first period. In period...

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Suppose in a two-period model Firm 1 is a monopolist in the first period. In period 2 an entrant, Firm 2, is going to enter this market. Industry demand equals P = 10 - qu in period 1 and P = 10- 912 922 in period 2, where 91 and 912 are firm l's outputs in each period and 922 is firm 2's output in period 2 (firm 2 doesn't operate in period 1). In period 1 (the monopoly period), the monopolist's total cost function is TC= 4q11. so MC= 4. In the second period, the monopolist's total cost function is TC = 4 - 1 q11 912. That is to say, Firm I's second-period marginal cost decreases as it gains more experience producing the good in period 1. Firm 2's total cost function is TC= 4922. In all portions of this problem, the time periods are close enough together that there is no time discounting (i = 0, or equivalently t5 = 1), but the dynamic nature of the game will matter. a. First, suppose there is no entrant at all, but the monopolist still learns by doing (see cost function above). Solve the optimal monopoly quantities (91 and 12 given 922 = 0). b. If the monopolist produces the output you found in part (a) in period 1, what is the Cournot-Nash equilibrium in period 27 Calculate the monopolist's total profits in the two periods. c. Calculate the SPNE outcome for 911 912, and922, andnote how and why it is different from parts (a) and (b). Suppose in a two-period model Firm 1 is a monopolist in the first period. In period 2 an entrant, Firm 2, is going to enter this market. Industry demand equals P = 10 - qu in period 1 and P = 10- 912 922 in period 2, where 91 and 912 are firm l's outputs in each period and 922 is firm 2's output in period 2 (firm 2 doesn't operate in period 1). In period 1 (the monopoly period), the monopolist's total cost function is TC= 4q11. so MC= 4. In the second period, the monopolist's total cost function is TC = 4 - 1 q11 912. That is to say, Firm I's second-period marginal cost decreases as it gains more experience producing the good in period 1. Firm 2's total cost function is TC= 4922. In all portions of this problem, the time periods are close enough together that there is no time discounting (i = 0, or equivalently t5 = 1), but the dynamic nature of the game will matter. a. First, suppose there is no entrant at all, but the monopolist still learns by doing (see cost function above). Solve the optimal monopoly quantities (91 and 12 given 922 = 0). b. If the monopolist produces the output you found in part (a) in period 1, what is the Cournot-Nash equilibrium in period 27 Calculate the monopolist's total profits in the two periods. c. Calculate the SPNE outcome for 911 912, and922, andnote how and why it is different from parts (a) and (b).

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a First period monopoly period with q22 0 Demand P 10 q11 Marginal revenue MR 10 2q11 Marginal cost ... View the full answer