1. Suppose rm 1 has a cost function given by C1(q1) = .025qf. This means marginal cost is MC(q1) = .05q1. Inverse demand is given by 13022) : 50 .162. This rm is currently a monopolist. - Suppose this rm acts like a simple monopolist. How much will it produce and what price will it charge? Suppose now that a new rm is considering entering this market. Suppose it has cost function given by: 02(q2) = 10:12 + 0.025613 So its marginal cost mction is MCg(q2) = 10 + .Gqg. - Suppose rm 1 is committed to the monopoly level of output. Would rm 2 nd it protable to enter this market? If so, what level of output will it produce? What will be the new industry price? I What level of output must the incumbent rm I produce in order to deter rm 2 from entering the market? (Hint: solve for the output level (1 so that if the entrant thinks the incumbent will produce 1:; then the entrant would have zero prots if it entered). - Suppose the incumbent rm and the entrant play a Cournot game if the entrant enters (meaning the incumbent cannot commit to a particular output level up front). What is the equilibrium output and prot of the two rms. If the in- cumbent rm 1 could commit to the output level found in the previous question, would it want to do that or would it be better off accommodating entry and getting Cournot duopoly prot