Homework Help is Here – Start Your Trial Now!
Business
Economics
Consider a good for which the per-period inverse- demand is p = v — Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where 9₁ is its output in the first period and € (0,2). a. Show that the incumbent will produce q₁ = 1-C₁ 2-λ . Interpret it with respect to λ. Suppose now that there is a potential entrant E that might enter in the second period. It has marginal production cost C = C₁ and no cost of entry. Because of the latter, for the sake of clarity, suppose that the entrant always enters but may produce zero (in which case it does not enter de facto). The two firms compete in quantities. b. Find the equilibrium in the second period given some C2. c. How does q₁ affect the incumbent's and entrant's profits in the second period? d. Find the equilibrium value of q₁. When is entry blockaded, deterred and accommodated, respectively?

Consider a good for which the per-period inverse- demand is p = v — Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where 9₁ is its output in the first period and € (0,2). a. Show that the incumbent will produce q₁ = 1-C₁ 2-λ . Interpret it with respect to λ. Suppose now that there is a potential entrant E that might enter in the second period. It has marginal production cost C = C₁ and no cost of entry. Because of the latter, for the sake of clarity, suppose that the entrant always enters but may produce zero (in which case it does not enter de facto). The two firms compete in quantities. b. Find the equilibrium in the second period given some C2. c. How does q₁ affect the incumbent's and entrant's profits in the second period? d. Find the equilibrium value of q₁. When is entry blockaded, deterred and accommodated, respectively?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

part B C D needed 

 

Consider a good for which the per-period inverse- demand is p = v - Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where q₁ is its output in the first period and λ € (0,2). a. Show that the incumbent will produce q₁ = 11. Interpret it with respect to 1. 2-λ Suppose now that there is a potential entrant E that might enter in the second period. It has marginal production cost C = C₁ and no cost of entry. Because of the latter, for the sake of clarity, suppose that the entrant always enters but may produce zero (in which case it does not enter de facto). The two firms compete in quantities. b. Find the equilibrium in the second period given some C₂. c. How does q₁ affect the incumbent's and entrant's profits in the second period? d. Find the equilibrium value of q₁. When is entry blockaded, deterred and accommodated, respectively?
Transcribed Image Text:Consider a good for which the per-period inverse- demand is p = v - Q. There are two periods and no discounting. There is an incumbent firm I that has marginal production cost c₁ < 1 in the first period. In the second period, its marginal production cost is C₂ = C₁ — λq₁, where q₁ is its output in the first period and λ € (0,2). a. Show that the incumbent will produce q₁ = 11. Interpret it with respect to 1. 2-λ Suppose now that there is a potential entrant E that might enter in the second period. It has marginal production cost C = C₁ and no cost of entry. Because of the latter, for the sake of clarity, suppose that the entrant always enters but may produce zero (in which case it does not enter de facto). The two firms compete in quantities. b. Find the equilibrium in the second period given some C₂. c. How does q₁ affect the incumbent's and entrant's profits in the second period? d. Find the equilibrium value of q₁. When is entry blockaded, deterred and accommodated, respectively?
Expert Solution
steps

Step by step

Solved in 5 steps with 7 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Multiplicative Exponential demand Model
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS