What is the subgame perfect equilibrium of the game

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Reference no: EM13191030

Consider a monopolist facing the demand curve p = 10 - Q.
The monopolist can
choose either of the following cost functions:
c1(q) = 3q
or
c2(q) = 10 + q.
a) Which cost function does the monopolist choose?
b) Now suppose that there is a second ?rm with cost function c1 (q) above. Whichever cost function ?rm 1 chooses, the second ?rm will observe this choice and then have the option of entering the market or not. If he does not enter, ?rm 1 remains a monopolist with the chosen cost function. If ?rm 2 does enter, he pays an entry cost of $4 and the two ?rms compete as Cournot duopolists. More precisely, whichever cost function ?rm 1 chose, we have a pure strategy Nash equilibrium in quantity choices. Which cost function does ?rm 1 choose now? Put differently, what is the subgame perfect equilibrium of this
game?

Reference no: EM13191030

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