Question

Two firms simultaneously decide whether or not to enter a market, and if yes, when to enter a market. The market lasts for 5 periods: starting in period 1 and ending in period 5. A firm that chooses to enter can enter in any of the five periods. Once a firm enters the market in any period it has to stay in the market through period 5. In any period tt that the the firm is not in the market, it earns a zero profit. In any period tt, if a firm is a monopolist in the market, it makes the profit 10t−24. In any period tt if a firm is a duopolist in the market it makes a profit of 7t−24. A firm's payoff is the total profit it earns in all the periods it is in the market.

How many strategies does each firm have?

Firm 1's best response to Firm 2's choice Do not enter is to enter in period:

In a Nash equilibrium, Firm 1 enters in period _______ (if there is more than one answer, write any one)

Answer 1

If the firm enters the market..it has five periods

The market last only in the fifth period strating from first period to the fifth period

Any firm can join into the market through any of the periods

If tt is not in the market it only earns zero profits

In telegraphic transfer, if the firm is a monopolist it earns 10t-24 which is 12t

If the firm is a duopolist it earns 7t-24 which is 15t

Here the duopolist only chooses to enter into the market though it earns more profit than the other(firm 2)