Handwritten please. Thank you! Firm 1 must decide whether to enter an industry in which firm 2 is an incumbent.To enter this industry, firm 1 must choose to build either a plant with a smalloutput capacity (S), or large output capacity (L). A plant with small capacity costs$50 to set up; one with large capacity cost $175. In either case, the marginal costof production is zero. But firm 1 can also opt to stay out (O), in which case it doesnot incur any type of cost. Firm 2 is able to observe firm 1's decision beforedeciding whether to expand or not its initial small output capacity operation.Expanding (E) costs firm 2 $80, whereas not expanding (N) incurs no cost for thefirm. In either case, the marginal cost of production is also zero.The revenues under the different scenarios are given below.- If only one small firm exists, its revenue is $80, the other earns zero.If two small firms exist, each earns revenue of $70.- If only one large firm exists, its revenue is $200, the other earns zero.- If two large firms exist, each earns revenue of $90.- If one small and one large firm exist, the small firm earns $40, while the large oneearns $160.Answer the following:a) How many pure strategies are available for firm 1?b) How many pure strategies are available for firm 2?c) What is the sum of the firms' profits in the subgame perfect equilibrium?

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Firm 1 must decide whether to enter an industry in which firm 2 is an incuml To enter this industry, firm 1 must choose to build either a plant with a small output capacity (S), or large output capacity (L). A plant with small capacity $50 to set up; one with large capacity cost $175. In either case, the margina of production is zero. But firm 1 can also opt to stay out (O), in which case it not incur any type of cost. Firm 2 is able to observe firm 1's decision before

Firm 1 must decide whether to enter an industry in which firm 2 is an incuml To enter this industry, firm 1 must choose to build either a plant with a small output capacity (S), or large output capacity (L). A plant with small capacity $50 to set up; one with large capacity cost $175. In either case, the margina of production is zero. But firm 1 can also opt to stay out (O), in which case it not incur any type of cost. Firm 2 is able to observe firm 1's decision before

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Firm 1 must decide whether to enter an industry in which firm 2 is an incumbent. To enter this industry, firm 1 must choose to build either a plant with a small output capacity (S), or large output capacity (L). A plant with small capacity costs $50 to set up; one with large capacity cost $175. In either case, the marginal cost of production is zero. But firm 1 can also opt to stay out (0), in which case it does not incur any type of cost. Firm 2 is able to observe firm 1's decision before deciding whether to expand or not its initial small output capacity operation. Expanding (E) costs firm 2 S78, whereas not expanding (N) incurs no cost for the firm. In either case, the marginal cost of production is also zero. The revenues under the different scenarios are given below. - If only one small firm exists, its revenue is $80, the other earns zero. - If two small firms exist, each earns revenue of $70. - If only one large firm exists, its revenue is $200, the other earns zero. - If two…
Firm 1 must decide whether to enter an industry in which firm 2 is an incumbent. To enter this industry, firm 1 must choose to build elther a plant with a small output capacity (S), or large output capacity (L). A plant with small capacity costs $50 to set up; one with large capacity cost $175. In either case, the marginal cost of production is zero. But firm 1 can also opt to stay out (0), in which case it does not incur any type of cost. Firm 2 is able to observe firm 1's decision before deciding whether to expand or not its initial small output capacity operation. Expanding (E) costs firm 2 $76, whereas not expanding (N) incurs no cost for the firm. In either case, the marginal cost of production is also zero. The revenues under the different scenarios are given below. - It only one small firm exists, its revenue is $80, the other earns zero. - if two small firms exist, each earns revenue of $70. - If only one large firm exists, its revenue is $200, the other earns zero. - If…
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Nicole wants to examine first if she wants to enter the market for Chanel bags and she assumes that the market is under perfect competition. She observed that all the firms that are producing Chanel bags have the same LR cost function and is given by C = 200+20q+0.5q². All firms present in the market has a fixed cost of $200 if it produces a positive output, otherwise the LR cost is zero if there is zero production. The market demand for Chanel bags is QD = 1000 - 2p, where p is the price of one umbrella. Currently, Nicole counted that there are 22 firms in the industry and that the market is a constant cost industry. (c) Suppose that the demand for the Chanel Bag shifts to QD = 1600-2p. Assuming that the industry is in the LR equilibrium, solve for the market clearing condition and the number of firms present.
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