Question

A town has just one movie theater (Alpha) operating as a monopolist. Another firm (Beta) is considering entering the town's market. Suppose that the inverse demand curve each period for tickets in this town is given by P 200-Q, and the current firm faces the following total cost each period of TCi 30qi or a marginal cost and average cost of 30. The entrant has a total cost each period of TCe 40qetf or a marginal cost of 40 and a fixed cost equal to f. If entry occurs, Beta believes that the amount of tickets sold by Alpha following entry will be the same as the amount of tickets Alpha sold prior to entry. Alpha wants to maximize its profits and is considering the following strategies Strategy 1: Act like a monopolist for as long as possible then act as a Stackelberg leader when Beta enters the market. Strategy 2: Try to deter Beta's entry by raising its output and lowering its price (a) If Alpha chooses strategy 1, what price will it charge before Beta's entry? How much will it sell each period? (b) What price will Alpha charge after Beta enters the market? How much will it sell per period? How much will Beta sell after entry? (c) What are Alpha's per period profits before and after Beta enters the market? (d) If Alpha chooses strategy 2, what price will it charge and how much will it sell per period if f 900 (e) What are Alpha's per period profits when following strategy 2 when f 900 (f) Suppose the interest rate equals 10% and it takes two years for Beta to set up a movie theater after deciding to enter. The two firms compete as a Stackelberg duopoly for 10 years after entry. What strategy will Alpha use when f 900

Answer 1

RITES Limited "SoQ NOTES -309-i. 0g entrant, Te- T. stratengto ブーー 200-00 200-2030 P200-35 SR 200-4-40 e プ (120 r 오)@jı'soy2

2019 RITES Limited friarz / DECEMBER Saturday 09.00 21.00 14.00 15.00 17.00 eno 29 Sunday Monday 200- 160-9160 b0-9- 100 1.-900

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