Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?
What will be an ideal response?
Firm B's reaction function is qB = 5 - (1/2)qA. The Stackelberg leader quantity is 5 and firm B will produce 2.5. Firm A's profit is 12.5. If firm A produces 6 units for example, firm B's best response is
2 units; however, it would incur a loss and not enter. Firm A's profits by preventing entry would be 24. Thus, firm A can deter entry by overproducing.
Economics
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As a result of the open market sale, Jekyll Bank
A) can create $50,000 of new loans. B) will have $45,000 of excess reserves. C) will have to borrow reserves to replenish its reserve deficiency. D) will have an increase in checkable deposits.
Economics
Are restaurant coupons a form of price discrimination? Why or why not?
What will be an ideal response?
Economics