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Isaac has been the only grocery store in the small town of Tallahassee, Florida for the past ten years. The owner of Isaac has become

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Isaac has been the only grocery store in the small town of Tallahassee, Florida for the past ten years. The owner of Isaac has become aware that a new store, Kitchens, is considering entering the Tallahassee market. Isaac is deciding whether to expand its store by 2000 square feet, a move that would force the new Kitchens store to also expand its square footage by the same amount. Isaac moyes before Kitchens decides on whether to enter. The net payoffs from the various decisions are listed in thousands of dollars in the Table below. In each box Kitchens' payoff is listed first and Isaac's payoff is listed second. Here is the intuition behind the payoffs in the table. If both stores are in the market, they each earn $600 thousand if there is no expansion. If Kitchens does not enter the market, Isaac's profits will be $900 thousand. If both are in the market and both have expanded, the profits are reduced from 600 thousand to -100 thousand by the F00 thousand cost of expansion. When only Isaac is in the market and he expands, his profits are reduced from 900 thousand to 200 thousand by the 7'00 thousand cost of expansion. b. [30 points} Describe the Nash equilibrium that you expect to see. Make sure to explain your logic. c. {20 points). Define strategic entry deterrence and explain why this is an example pf it or why it is net? d. {20 points}. Define a prisenesz dilemma. Does the game in part a. fit the definition of a prisoner's dilemma? Explain. ,_.._,_.__.-._.____...._

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