Whаt is аn exаmple оf an actiоn that yоu perform during the enroute phase of flight?
Cоnsider а mаrket with оnly оne firm operаting in it, which we identify as the leader firm. There is, however, a second firm evaluating whether or not to enter the market. We shall identify this firm as the entrant one. Cost functions are given by and , where is the fixed entry cost that the entrant must pay to start producing. Market demand is given by where (of course, if the entrant is not in the market, then ). As in the Stackelberg environment, competition takes place in two stages: in the first stage, the leader chooses its quantity, and in the second stage, the entrant observes the leader’s quantity and decides whether to enter or not. If it does, the entrant chooses how much to produce at the same time. a) (6 points) Find an expression for the entrant’s reaction(best response) function. b) (12 points) Assuming , will the entrant enter? Explain whether the market is a duopoly or a monopoly. Derive the two firms' quantities and profits. Still, . The government desires the entrant to enter the market. So, the government chooses to support the fixed cost() of the entrant to remove the entry barrier. c) (4 points) {How much subsidy should the government exceed? In other words, which additional amount from makes the entrant's profit indifferent between entering and not entering? The government starts to support for the new firms. Now, for the entrant. d) (6 points) What can you say about the entry into this market now? Derive the quantity and profit of the leader's firm and the entrant's firm. Now, the government can observe the deterred monopoly and impose a penalty. (If the monopoly occurred due to blocking from fixed costs, the government would not impose the fine.) e) (3 points) How many penalties at least the government should impose to prevent the deterred monopoly? Explain the reason.