If there are two firms in the market what are their profits, Ask an Expert

Economics

Cournot Competition with Entry Cost

Consider a market with demand function P = 20 - Q. There are 30 potential competing firms with identical cost functions C(q) = q, but to enter the market they each need to pay an entry cost of 2. In particular, each firm first decides whether it will pay the cost to enter the market; no firm can see others' decisions in this phase. Then the firms who enter the market play Cournot competition.

1. If there are two firms in the market, what are their profits after taking into account the entry cost?

2. Would it be profitable for a third firm to pay the cost to enter the market?

3. How many firms would be in the market in the SPNE?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9678932

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