1. Assume that the domestic market of Soft Drink in country A is monopolized by one firms, Kirin. In this market, the inverse demand function is given by the following form:

p (Q) = 1000 2Q, while the cost function is given by:

c (Q) = 100Q,

where Q represents the total amount of the soft drink supplied in this market.

Then, Kirin will choose its own production by solving the following program: max (QK)=p(QK)QK c(QK).

QK=0

Now, a new firm, Pepsi, considers to enter this market. If Pepsi decides not to enter the market, then Kirin will still monopolize the market and then enjoy its payoff

max (QK) QK=0

while P epsi's payoff is equal to zero. If P epsi decides to enter the market, then Kirin will have two options: Accomodate and Fight.

In the case of Accomodate, Kirin will simply accept Pepsi as a new rival firm, so that they will play the Cournot Duopoly game. Note that the Pepsi has the same cost function as Kirin.

In the case of Fight, Kirin will spend a great amount of money for the negative campaign of Pepsi to harm the reputation of Pepsi. In conclusion, Pepsi would receive the payoff equal to 100, while Kirin would receive the payoff equal to zero.

Given this game, answer the following questions:

(1) Specify what all of pure-strategy Nash equilibria of this game are. More- over, compute the Nash equilibrium payoff allocation of each and every Nash equilibrium of this game.

(2) Specify what the subgame perfect equilibrium of this game is. Moreover, compute the subgame perfect equilibrium payoff allocation.

(3) Explain which of the Nash equilibria is the most reasonable in this game.