Answer Happy

Question No. 5 In a recent document filed with the Antitrust Tribunal, the Antitrust Authority argued that Cournot's model predicts that a monopoly's loss of profit as a result of the first competitor's entry is greater than its loss of profit as a result of a second competitor's entry into the market. The purpose of the question is to examine this claim Assume that the inverse demand function in the market is: P = 20-Q, where is the aggregate quantity and P is the price of the product. Developments in the market are described according to the following schedule: In the first period, only firm 1 operates in the market, whose marginal expenditure per unit is k. In the second period, firm 2 enters the market whose marginal expenditure per unit is k, and the two firms (1 and 2) compete for by setting quantities simultaneously. In the third period, Firm 3 enters the market whose marginal expenditure per unit is k, and all three firms compete by determining quantities simultaneously. For simplicity, assume that all firms fixed costs are sunk.
c. Calculate the profit of firm 1 in the first period. b. Calculate the profit of firm 1 in the equilibrium in the market in the second period (where there are two firms that compete by quantities). Calculate the profit of firm 1 in the equilibrium in the market in the third period (where there are three firms that compete by quantities). d. Based on the calculations you made above, is the Antitrust Authority correct in determining that the loss of a monopoly's profit as a result of the entry of the first competitor into the market is greater than the loss of its profit as a result of the entry of a second competitor into the market? a