None 1. Assume a market that operates for two periods. Its demand is q = 12-p per period.a) Firm I is the only firm in the market in period 1. It has a fixed cost of 1 per period anda constant marginal cost of 6 given its current technology. Calculate its profitmaximizing price, quantity, and profit.b) Firm E wishes to enter the market in the next period. Assume that its costs areidentical to Firm I's period 1 costs. Suppose that it enters the market and firms engagein quantity competition. What is each firm's profit maximizing price, quantity, andprofit in period 2?c) Firm I has the opportunity to lower its marginal cost by 2 through R&D in period 1before Firm E enters. If it does so and Firm E does not enter, what is each firm'sequilibrium price, quantity, and profit in period 2?d) Will Firm E enter if Firm I invests in R&D? Calculate each firm's equilibrium price,quantity, and profit in period 2?e) What is the maximum sunk cost that Firm I would be willing to incur for R&D?f) Assume that Firm I goes ahead with R&D. What is the equilibrium outcome of themarket?

Part a)Firm I in Period 1:Demand function: q=12−pq = 12 - pq=12−pMarginal cost (MC) = 6Fixed cost…

Answered: 1. Assume a market that operates for…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.9P

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