Assume as in Problem 15.1 that two firms with no production costs, facing demand Q = 150-P, choose quantities and 12-

a. Compute the subgame-perfect equilibrium of the Stackelberg version of the game in which firm 1 chooses q, first and then firm 2 chooses 2

b. Now add an entry stage after firm 1 chooses g. In this stage, firm 2 decides whether or not to enter. If it enters then it must sink cost K, after which it is allowed to choose 2. Compute the threshold value of K, above which firm I prefers to deter firm 2's entry.

c. Represent the Cournot, Stackelberg, and entry-deterrence outcomes on a best-response func- tion diagram.