Vertical product differentiation and entry

Consider the setup of the standard vertical differentiation model. Suppose that consumers have types ? distributed with unit density on [2, 3] and that a consumer of type ? gets utility u_i = ?s_i ?p_i. when he pays a price p_i and consumes a good of quality s_i. Suppose that firm 1 can produces a good of quality 2 at marginal cost of 0.

Suppose firm 2 is a potential entrant. If firm 2 pays a fixed cost of K it will be able to produce a good of quality 1 at marginal cost 0 and the firms will then play a simultaneous move pricing game. What is firm 1's profit as a function of K?

Question 2. Vertical product differentiation and entry Consider the setup of the standard vertical differentiation model. Suppose that consumers have types 0 distributed with unit density on [2, 3] and that a consumer of type 0 gets utility ui = 63,' pi. when he pays a price pi and consumes a good of quality 32-. Suppose that rm 1 can produces a good of quality 2 at marginal cost of 0. Suppose rm 2 is a potential entrant. If rm 2 pays a xed cost of K it Will be able to produce a good of quality 1 at marginal cost 0 and the rms Will then play a simultaneous move pricing game. What is rm 1's prot as a function of K