Vhat are the NE quantities, price, and profits if there is no government intervention. o block entry, the incumbent appeals to the government to require that the entrant xtra costs. What happens to the equilibrium if the legal requirement causes the al cost of the second firm to rise to that of the first firm, $20? Jow suppose that the barrier leaves the marginal cost unchanged, but imposes a st. The incumbent keeps its strategy from a). What is the minimal fixed cost that 1

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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3. An incumbent firm, Firm 1, faces a potential entrant, Firm 2, that has a lower
marginal cost. The market demand curve is p =
120 – 91 - 92. Firm 1 has a constant
marginal cost of $20, while Firm 2's is $10.
a) What are the NE quantities, price, and profits if there is no government intervention.
b) To block entry, the incumbent appeals to the government to require that the entrant
incur extra costs. What happens to the equilibrium if the legal requirement causes the
marginal cost of the second firm to rise to that of the first firm, $20?
c) Now suppose that the barrier leaves the marginal cost unchanged, but imposes a
fixed cost. The incumbent keeps its strategy from a). What is the minimal fixed cost that
1
will prevent entry?
Transcribed Image Text:3. An incumbent firm, Firm 1, faces a potential entrant, Firm 2, that has a lower marginal cost. The market demand curve is p = 120 – 91 - 92. Firm 1 has a constant marginal cost of $20, while Firm 2's is $10. a) What are the NE quantities, price, and profits if there is no government intervention. b) To block entry, the incumbent appeals to the government to require that the entrant incur extra costs. What happens to the equilibrium if the legal requirement causes the marginal cost of the second firm to rise to that of the first firm, $20? c) Now suppose that the barrier leaves the marginal cost unchanged, but imposes a fixed cost. The incumbent keeps its strategy from a). What is the minimal fixed cost that 1 will prevent entry?
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