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4. Two firms must decide whether or not to innovate and enter a new market. Any firm that enters incurs an entry cost but will
4. Two firms must decide whether or not to innovate and enter a new market. Any firm that enters incurs an entry cost but will generate revenues with the new product. If both firms enter, they each receive duopoly revenues equal to Sr. If only one firm enters, that firm receives monopoly revenues equal to S R . The firms' decision is summarized in the payoff matrix below. Firm 2 Enter/innovate Don't enter/innovate 0,R-c 0,0 Firm 1 Don't enter/innovate 9 ' a) \"Suppose R=50,r =40, =30. Calculate any Nash equilibria in this game. What do you predict will happen? b) Now suppose each firm owns patents for inventions that are essential for the production of this new product, such that if only one firm enters the market, it must pay 50% of its monopoly revenues to the other firm, even though that firm does not enter or produce anything. How, if at all, does this effect the predicted outcome of the game
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