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(20 points) In the Dixit's model, market demand is given by P=100-2(q1+q2). Production of each unit of the good requires a cost r-20 per unit
(20 points) In the Dixit's model, market demand is given by P=100-2(q1+q2). Production of each unit of the good requires a cost r-20 per unit of capacity and w=20 for labor. Each firm also has a fixed cost F1=100 and F2>0. 5.1. If the firms compete according to a symmetric Cournot game when each firm has a marginal cost c=w+r=40, what are the best response functions? What is the equilibrium? 5.2. If the incumbent were a monopolist in the market, with a constant marginal cost c=40, what would his price, quantity and profit be? 5.3. If the two firms compete according to an asymmetric Cournot game where the incumbent had a marginal cost ci-w=20 and the entrant had a marginal cost C2=w+r=40, what would the asymmetric Cournot equilibrium be? 5.4. If both firms have a marginal cost c-wer-40, but they compete according to the Stackelberg game, (incumbent moves first and then the entrant) what quantity would each firm produce? What would the market price be? What would the profit of each firm be? (Be sure to account for the fixed costs, in this question both firms have a fixed cost). 5.5. For what value of the fixed cost F2 is entry blockaded? 5.6. If F2=98 is entry deterred or accommodated
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