# Nash equilibrium

Solve and explain

You are considering entering a market serviced by a monopolist. You currently earn $0 economic profits, while the monopolist earns $5. If you enter the market and the monopolist engages in a price war, you will lose $5 and the monopolist will earn $1. If the monopolist doesn't engage in a price war, you will each earn profits of $2.

a. Write out the extensive form of the above game.

b. There are two Nash equilibria for the game. What are they?

c. Is there a subgame perfect equilibrium? Explain.

d. If you were the potential entrant, would you enter? Explain why or why not.

https://brainmass.com/economics/game-theory/nash-equilibrium-20542

#### Solution Summary

Apply the Nash equilibrium.

$2.19