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Assume, as in problem 15.1, that two rms with no production costs, facing a demand of Q = 150 P, choose quantities :11 and q2 Suppose that, as in the Stackelberg version of the game, rm 1 chooses :11 rst and then rm 2 chooses q; after observing the actions of rm 1. In the subgame-perfect equilibrium of this game, rm 1 produces q'f = V and firm 2 produces 43 = V . 150 2'/K lx 2'/K Now add an entry stage after firm 1 chooses q1 . In this stage, firm 2 decides whether - ( 2 2 which it is allowed to choose qz. (150 2K2) x 2K2 (vs-wows to prefer to produce such an output level, it must be the case that firm 1's prot 7n = V be greater than the prot earned from accommodating then it must sink cost K2 , after In order for rm 1 to produce a level of output that deters rm 2's entry, firm 1 must p ere c112 v . In order for rm 1 rm 2's entry into the market. .ttttttttt CED totttttttt t2 5. Problems 15.7 Assume, as in problem 15.1, that two rms with no production costs, facing a demand of Q = 150 P, c -ntities 41 and q2 Suppose that, as in the Stackelberg version of the game, rm 1 chooses :11 rst and then rm 2 chooses a bserving the actions of rm 1. In the subgame-perfect equilibrium of this game, rm 1 produces 41' = V and firm 2 produces q; = v . Now add an entry stage after firm 1 chooses q1 . In this stage, firm 2 decides whether to enter or not. If it enters, then it must sink cost K2, after which it is allowed to choose qz. In order for rm 1 to produce a level of output that deters rm 2's entry, firm 1 must produce a level of output where 412 V . In order for rm 1 to prefer to produce such an output level, it must be the case that firm 1's prot 7:1 = v be greater than the prot earned from accommodating rm 2's entry into the market