Salgado (2008) found that AMD\'s cost of manufacturing computer chips was about

Question

Salgado (2008) found that AMD's cost of manufacturing computer chips was about 12% higher than Intel's cost because AMD had less learning by doing as it had produced fewer units. The more an incumbent firm produces in the first period, the lower its marginal cost in the second period. If a potential rival expects the incumbent to produce a large quantity in the second period, it does not enter. Assume for simplicity the game tree is illustrated in the figure to the right. What is the subgame perfect Nash equilibrium? The subgame perfect Nash equilibrium is for the incumbent produce the quantity. If the incumbent produces the small quantity the rival should . If the incumbent's profit from producing the large quantity were less than $ , then it would not pay for incumbent to produce the large quantity.(Enter your response as a whole number.)

Explanation / Answer

Answer :

The subgame perfect nash equilibrium is for the incumbent produce the 200 quantity. If the incumbent produces the small quantity , the rival should enter .

If the incumbent's profit from producing the large quantity were less than $ 200 , then it would not pay for the incumbent to produce the large quantity.

Assumption : Its is assumed that figures are given in dollars.

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