Managerial Economics 2nd Edition by William Boyes

Exercise 8

A firm is quite happy monopolizing its industry with profits of $10M. A potential competitor considers entering the industry. If the competitor elects not to enter, it earns profits of $0 and the monopolist maintains its profit of $10M. If the competitor enters, the monopolist must either accommodate the entry or fight. If the monopolist accommodates, both firms earn $5M. If the monopolist fights, both firms lose $5M. The game is represented by an extensive representation. What is the equilibrium?