Consider the following game played between an incumbent (I) a potential entrant (E): Incumbent: 80, Entrant: 40 Enter High Price E, Stay Out Incumbent: 120, Entrant: 0 High-Cost I, Enter Incumbent: 60, Entrant: 40 Nature Low Price E, Stay Out Incumbent: 100, Entrant: 0 Low-Cost Enter Incumbent: 150, Entrant: -10 Low Price Es Stay Out Incumbent: 200, Entrant: 0 Suppose the entrant observes a low price but is unsure whether they face a low-cost or high-cost incumbent, i.e. they are unsure whether they are at decision node E4 or E5. What is the maximum probability the incumbent is low cost such that the potential entrant will enter the market O a. 0.9 O b. 0.5 О с. 0.8 O d. 0.2

Consider the following game played between an incumbent (I) a potential entrant (E): Incumbent: 80, Entrant: 40 Enter High Price E, Stay Out Incumbent: 120, Entrant: 0 High-Cost I, Enter Incumbent: 60, Entrant: 40 Nature Low Price E, Stay Out Incumbent: 100, Entrant: 0 Low-Cost Enter Incumbent: 150, Entrant: -10 Low Price Es Stay Out Incumbent: 200, Entrant: 0 Suppose the entrant observes a low price but is unsure whether they face a low-cost or high-cost incumbent, i.e. they are unsure whether they are at decision node E4 or E5. What is the maximum probability the incumbent is low cost such that the potential entrant will enter the market O a. 0.9 O b. 0.5 О с. 0.8 O d. 0.2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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