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4. Two firms produce homogeneous products. Market demand is given by Q = 40 -P, and each firm faces a marginal cost of production of
4. Two firms produce homogeneous products. Market demand is given by Q = 40 -P, and each firm faces a marginal cost of production of 4 per unit. The timing of the game is as follows. In Period 1, firm I chooses the quantity it will sell. In Period 2, firm 2 (who observed firm I's choice in period 1) chooses whether or not to enter the market and if so what quantity to produce. If firm 2 chooses to enter it must pay an entry fee of F. Determine the subgame perfect Nash equilibrium, and the profits and prices that obtain in that equilibrium, for each of the following values of F. For each case, show your work and explain your answer. (a) F =0; (b) F = 64; (c) F = 90
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