question 5

DE 9-10.pdf Course Hero DE 11-12.pdf X + X O file:///C:/Users/Dell%20Inspiron/Desktop/New%20folder/11-12.pdf 5. Suppose that firm I can choose to produce decision after observing firm 2's choice good A, good B, both goods, or nothing. Firm and this possibility is common knowl- 2, on the other hand, can produce only good edge. Does this affect the game? If so, C or nothing. Firms' profits corresponding explain the new outcome. If not, explain to each possible scenario of goods for sale why not. are described in the following table: 6. Find three examples of different ways indi- Product Firm I's Firm 2's vidual firms or industries can make the Selection Profit Profit strategy "This offer is good for a limited time only" a credible strategy. A 20 A.B 18 7. The Gizmo Company has a monopoly on A.B.C 2 the production of gizmos. Market demand is B.C -3 described as follows: at a price of $1,000 per C gizmo, 25,000 units will be sold whereas at a A,C B = 00 0 price of $600, 30,000 will be sold. The only costs of production are the initial sunk costs of building a plant. Gizmo Co. has already a. Set up the normal form game for when invested in capacity to produce up to 25,000 the two firms simultaneously choose units. their product sets. What is the Nash a. Suppose an entrant to this industry could equilibrium (or equilibria)? capture 50 percent of the market if it b. Now suppose that firm 1 can commit to invested in $10 million to construct a its product choice before firm 2. Draw the extensive form of this game and plant. Would the firm enter? Why or why not? identify its subgame perfect Nash equi- b. Suppose Gizmo could invest $5 mil- librium. Compare your answer to (a) and lion to expand its capacity to produce explain. 40,000 gizmos. Would this strategy be a c. The game is like the one in (b), only profitable way to deter entry? now suppose that firm 1 can reverse its References O Type here to search e ENG 2:39 PM US 5/1/2020