Before entry, the incumbent earns a monopoly profit of $20 (profits in millions). If entry occurs, the incumbent and rival each earn the duopoly profit, $6. Suppose that the incumbent can induce the government to require all firms to install pollution-control devices that cost each firm $8. Should the incumbent urge the government to require pollution-control devices? Why or why not? Enter -(6,6) Assume for simplicity the game tree is illustrated in the figure to the right. All profits are Rival in millions. What is the subgame perfect Nash equilibrium? No devices (20,0) Don't enter O A. The Nash equilibrium is for the incumbent to require devices and for the rival to not enter regardless of whether devices are required. Incumbent Enter -(-2,-2) O B. The Nash equilibrium is for the incumbent to require devices and for the rival to only enter if devices are not required. Devices Rival OC. The Nash equilibrium is for the incumbent to not require devices and for the (12,0) rival to only enter if devices are not required. Don't enter O D. The Nash equilibrium is for the incumbent to require devices and for the rival to enter regardless of whether devices are required. O E. The game does not have a Nash equililbrium.

Before entry, the incumbent earns a monopoly profit of $20 (profits in millions). If entry occurs, the incumbent and rival each earn the duopoly profit, $6. Suppose that the incumbent can induce the government to require all firms to install pollution-control devices that cost each firm $8. Should the incumbent urge the government to require pollution-control devices? Why or why not? Enter -(6,6) Assume for simplicity the game tree is illustrated in the figure to the right. All profits are Rival in millions. What is the subgame perfect Nash equilibrium? No devices (20,0) Don't enter O A. The Nash equilibrium is for the incumbent to require devices and for the rival to not enter regardless of whether devices are required. Incumbent Enter -(-2,-2) O B. The Nash equilibrium is for the incumbent to require devices and for the rival to only enter if devices are not required. Devices Rival OC. The Nash equilibrium is for the incumbent to not require devices and for the (12,0) rival to only enter if devices are not required. Don't enter O D. The Nash equilibrium is for the incumbent to require devices and for the rival to enter regardless of whether devices are required. O E. The game does not have a Nash equililbrium.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.6P

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