Suppose an industry with market demand = 1000 (quantity and price ). Every firm in this industry has identical cost structure with fixed cost = 5000 and average variable cost = 100. Assume this market exists for only two periods.

(a) Assume only one firm exists in the first period and hence it is a monopolist, but it does not practice any strategy to prevent the second firm from entering this market in the second period. When the second firm enters this market in the second period, these two firms engage in Cournot competition. Calculate the total profits for these firms.

(b) Suppose the firm exists in the first period adopts strategic limit pricing = 110. Calculate the total profits for these firms. Would be able to prevent the second firm from entering this market if the second firm does not question the credibility of the first firm regarding its determination in keeping the strategic limit pricing in both periods?

(c) Would the second firm change its entry decision in part (b) if it hires an economist who is an expert in game theory? Use a properly labeled graph and numbers to help you explain how to determine the equilibrium.