Both firms can produce the good at zero marginal cost

Assignment Help Business Economics

Reference no: EM13795748

There is a market with inverse demand given by p(Q) = 240Q. Firm A (the incumbent) has to make an irreversible decision on how much capacity to build. After A decided on its capacity, Firm B (the entrant) will decide whether or not to enter this market. If B enters, it has to pay a sunk cost of entry of F = 100. (Firm A has already paid the entry cost, so we do not need to consider it here.) After paying the entry cost, B has to decide on its own capacity. Both firms can produce the good at zero marginal cost.

a. If B enters, what is Bs optimal capacity for any given capacity of rm A?

b. If A accommodates B, how much capacity should A build? What are As and Bs profits if A accommodates?

c. How much capacity would A have to build in order to deter Bs entry? Is entry deterrence profitable for A?

d. Suppose the entry cost is F = 2500 (instead of F = 100). Would entry deterrence now be profitable for A?

Reference no: EM13795748

Questions Cloud

Individuals in the foreign policy process : Give your opinion on whether or not you believe whether the expansion or reduction of bureaucracy is necessary for international policy making to effectively take place within public administration. Provide two (2) specific examples where this pol..

Nickel-and-diming approach can be utilized most effectively : Discuss why silence can be an effective response to a request for a last-minute concession and when the nickel-and-diming approach can be utilized most effectively.

Explain the purpose of an agreement template : Explain the purpose of an agreement template and why a written agreement best serves to generate commitment to the agreement

Understanding the emotions and attitudes of others : Emotional Intelligence (EI) focuses on understanding the emotions and attitudes of others. To manage relationships effectively, we need to not only understand ourselves, but also increase what we know about others. EI emphasizes four key competenc..

Both firms can produce the good at zero marginal cost : There is a market with inverse demand given by p(Q) = 240Q. Firm A (the incumbent) has to make an irreversible decision on how much capacity to build. After A decided on its capacity, Firm B (the entrant) will decide whether or not to enter this mark..

The difference between art and entertainment : the difference between art and entertainment?

How are you affected when the price of gas decreases : What is something that you buy that has no product differentiation - How are you affected when the price of gas decreases like it has over the past 6 months?

About money supply and reserve ratio : Due to limited borrowing options, the government may ask the central bank to print money. We also learned that the real seinorage revenue of the government depends on inflation and real money holding of the public, that is R= \prodM/P?. Explain the c..

Modification of content-process-product : The four key aspects of differentiated instruction are modification of content, process, product, and learning environment. Reflect on a lesson or an activity that you use in your own reading program. Provide some examples of how you might modify ..

User Account

All Pages