Firm 1 is an incumbent in a market that Firm 2 is considering entering. Market demand is described by P = 500 − (q1 + q2) Firm 1 has no fixed costs of production. The entrant has a fixed cost of $15,000 that is incurred only if it enters the market. Each unit of output requires 1 unit of capacity to produce. There are no other inputs of production. Both firms buy capacity in the same market where its price is r = 50. The cost functions of the two firms are therefore: C1 (q1) = rq1 C2 (q2) = 15,000 + rq2 (a) Consider the Stackleberg version of this game: Firm 1 produces an output level first, which it cannot change. Firm 2 then makes its entry decision, and, if it enters, an output decision. Compute the quantity qL1 (the limit quantity) which if it was produced
Firm 1 is an incumbent in a market that Firm 2 is considering entering. Market demand is described by P = 500 − (q1 + q2) Firm 1 has no fixed costs of production. The entrant has a fixed cost of $15,000 that is incurred only if it enters the market. Each unit of output requires 1 unit of capacity to produce. There are no other inputs of production. Both firms buy capacity in the same market where its price is r = 50. The cost functions of the two firms are therefore: C1 (q1) = rq1 C2 (q2) = 15,000 + rq2 (a) Consider the Stackleberg version of this game: Firm 1 produces an output level first, which it cannot change. Firm 2 then makes its entry decision, and, if it enters, an output decision. Compute the quantity qL1 (the limit quantity) which if it was produced by Firm 1, would drive the profits of Firm 2,
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