2. Suppose that the inverse demand function is described by P = 100 – 2(q1 +92), where 9₁ is the output of the incumbent

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2 Suppose That The Inverse Demand Function Is Described By P 100 2 Q1 92 Where 9 Is The Output Of The Incumbent 1 (81.19 KiB) Viewed 22 times

2. Suppose that the inverse demand function is described by P = 100 – 2(q1 +92), where 9₁ is the output of the incumbent firm and 92 is the output of the entrant. - = 20. In addition, let each firm have a fixed cost of F₁ = F₂ = 100. 92 - Let the labor cost per unit w = = 20 and capital cost per unit be r A. Suppose that in stage one the incumbent invests in capacity 91 > K₁. ₁. Show that in stage two the incumbent's best response function is 9₁ = 20 - when 9₁ ≤ K₁; 1. 2 and 91 = 15 92 when 2 91 - B. Show that the entrant's best response function in stage two is 92 : 15