Consider a market with an inverse demand function P (Q) = 64 − 3Q. There is a firm called Monoa,
which has a total cost function c(Q) = 4Q.
(a) Suppose Monoa is a monopoly. Find the profit maximizing price and quantity for Monoa.
(b) Suppose there is a potential entrant firm, called Entrau, with a total cost function c(q) = 16q. If Entrau enters the market, then Monoa and Entrau engage in a Stackelberg competition where Monoa is the leader and Entrau is the follower. Find the equilibrium quantity and profit of each firm, and the market price, if there is entry. Assuming no entry gives Entrau 0 profit, will it enter?
(c) Suppose Monoa can spend some money on lobbying that prevents Entrau’s entry. What is the maximum amount Monoa is willing to spend? How would your answer change if upon entry the two firms compete in Bertrand fashion?