Consider the market for first-aid training class. Market demand is given by P = 600 - Q. Market supply is given by P = Q. Individuals who have received first-aid training are very helpful in some urgent situations. More specifically, first-aid training will generate a positive spillover equal to 3/4Q. What is the deadweight loss if the externality is not dealt with?

DWL = 20,250

DWL = 40,000

None of the other answers is correct.

DWL = 40,500

DWL = 20,000

Consider the following game. Firm A can choose whether to enter a market against a single incumbent, Firm B, or not enter. If Firm A enters, Firm B can either respond by promoting or accommodating. The payoff matrix is shown in the table below (the first payoff is for Firm B). Assuming Firm A moves first, find the subgame perfect equilibrium of this game:

Firm A

Firm B enter not enter

promote (-1, -3) (2, 0)

accommodate (1, 2) (1, 0)

{exit; accommodate (if enter), promote (if not enter)}

None of the other answers is correct

{enter; accommodate (if not enter), promote (if enter)}

{exit; accommodate (if not enter), promote(if enter)}

{enter; accommodate (if enter), promote (if not enter)}