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2. Consider a market with inverse demand P(Q). In stage 1, firms simultaneously decide whether to enter the industry. Entry costs a set-up cost K.
2. Consider a market with inverse demand P(Q). In stage 1, firms simultaneously decide whether to enter the industry. Entry costs a set-up cost K. In stage 2, those firms that have entered play some oligopoly game with common cost function c(q) = cq. Let q(N) be the equilibrium output per firm in the stage-2 game. Assume that 9 (N) and P(Q(N)) > c(2). Now suppose that firms play Bertrand oligopoly game in stage 2. Taking the integer constraint into account, compare the socially optimal number of entrants with the free- entry equilibrium number of firms. Hint: you will find (the monopoly profit), CSM (consumer surplus under monopoly) and DWLY (the dead-weight loss under monopoly)useful in answering this
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