Environment 1. Alice (A) and Bob (B) are the sole producers in the market for bubblegum. Such market is populated by a unit mass continuum of consumers with unit demand and have valuations 0 ~ U(0,2). Such valuations are drawn iid across consumers. When either A or B produce q (0,1) units of bubblegum at a price of p, their profits equal to (p,q) = pq - n19>0, n (0,1) (1) Stackelberg Competition (. 40 points.) Nature first draws O's for each buyer and privately informs each buyer of their particular realization. Alice first announces her level of production 74. Bob then follows suits. Consumers lastly make their purchase decisions and the market ends. 1. (5 points.) Define a buyer strategy as well as the strategy for Bob and Alice. 2. (5 points.) Define equilibrium. 3. (10 points.) Characterize equilibrium assuming that n = 0. 4. (10 points.) Calculate profits and consumer surplus. 5. (10 points.) Calculate the smallest n >0 such that Bob decides to not enter the market. Environment 1. Alice (A) and Bob (B) are the sole producers in the market for bubblegum. Such market is populated by a unit mass continuum of consumers with unit demand and have valuations 0 ~ U(0,2). Such valuations are drawn iid across consumers. When either A or B produce q (0,1) units of bubblegum at a price of p, their profits equal to (p,q) = pq - n19>0, n (0,1) (1) Stackelberg Competition (. 40 points.) Nature first draws O's for each buyer and privately informs each buyer of their particular realization. Alice first announces her level of production 74. Bob then follows suits. Consumers lastly make their purchase decisions and the market ends. 1. (5 points.) Define a buyer strategy as well as the strategy for Bob and Alice. 2. (5 points.) Define equilibrium. 3. (10 points.) Characterize equilibrium assuming that n = 0. 4. (10 points.) Calculate profits and consumer surplus. 5. (10 points.) Calculate the smallest n >0 such that Bob decides to not enter the market