Two firms, an incumbent (I) and an entrant (E), compete on quantity. There is a one-time...

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Two firms, an incumbent (I) and an entrant (E), compete on quantity. There is a one-time entry cost equal to 9. Both firms have marginal costs equal to 5 and no fixed cost of operating. Demand is p = 20 - 91- qE. a. For part (a), assume both have entered and relevant entry costs are 0. What are the static Cournot NE quantities and profits? Now consider the Stackelberg version of the game. Everyone has already entered (entry costs are sunk). First, I sets q₁ for all to see, and then E sets qE- b. Find the SPNE quantities and profits (including sunk entry costs for both). In hindsight, does I regret entering? Now assume that, after observing qr. E has two decisions: First, whether to enter (and pay S) or not (payoff of 0, qE = 0). And then, if E enters, what quantity to set. c. What is the lowest qr can be such that E prefers not to enter? Assume exactly zero profit means I won't enter. (Note: Sometimes when you have a quadratic equation you have two critical values, even [ahem] when it can be simplified without using a formula. But in the context of an economics problem, often only one critical value makes sense.) d. Describe the complete SPNE of this game, not just the outcome. Two firms, an incumbent (I) and an entrant (E), compete on quantity. There is a one-time entry cost equal to 9. Both firms have marginal costs equal to 5 and no fixed cost of operating. Demand is p = 20 - 91- qE. a. For part (a), assume both have entered and relevant entry costs are 0. What are the static Cournot NE quantities and profits? Now consider the Stackelberg version of the game. Everyone has already entered (entry costs are sunk). First, I sets q₁ for all to see, and then E sets qE- b. Find the SPNE quantities and profits (including sunk entry costs for both). In hindsight, does I regret entering? Now assume that, after observing qr. E has two decisions: First, whether to enter (and pay S) or not (payoff of 0, qE = 0). And then, if E enters, what quantity to set. c. What is the lowest qr can be such that E prefers not to enter? Assume exactly zero profit means I won't enter. (Note: Sometimes when you have a quadratic equation you have two critical values, even [ahem] when it can be simplified without using a formula. But in the context of an economics problem, often only one critical value makes sense.) d. Describe the complete SPNE of this game, not just the outcome.

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Step 1 In the Cournot equilibrium each firm chooses its quantity to maximize its prof... View the full answer