You are considering entering a market serviced by a monopolist.You currently earn $0 economic profits,while the monopolist earns $5.If you enter the market and the monopolist engages in a price war,you will lose $5 and the monopolist will earn $1.If the monopolist doesn't engage in a price war,you will each earn profits of $2.
a.Write out the extensive form of the above game.
b.There are two Nash equilibria for the game.What are they?
c.Is there a subgame perfect equilibrium?

d.If you were the potential entrant,would you enter?
Explain why or why not.

Question

You are considering entering a market serviced by a monopolist.You currently earn $0 economic profits,while the monopolist earns $5.If you enter the market and the monopolist engages in a price war,you will lose $5 and the monopolist will earn $1.If the monopolist doesn't engage in a price war,you will each earn profits of $2.
a.Write out the extensive form of the above game.
b.There are two Nash equilibria for the game.What are they?
c.Is there a subgame perfect equilibrium?
 
d.If you were the potential entrant,would you enter?
 Explain why or why not.

Quizplus · Accepted Answer

The Answer of You are considering entering a market serviced by a monopolist.You currently earn $0 economic profits,while the monopolist earns $5.If you enter the market and the monopolist engages in a price war,you will lose $5 and the monopolist will earn $1.If the monopolist doesn't engage in a price war,you will each earn profits of $2.
a.Write out the extensive form of the above game.
b.There are two Nash equilibria for the game.What are they?
c.Is there a subgame perfect equilibrium?
 
d.If you were the potential entrant,would you enter?
 Explain why or why not.

You Are Considering Entering a Market Serviced by a Monopolist