Solve and describe:
Problem: 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.
1) Write out the extensive form of the above game.
2) There are two Nash equilibria for the game. What are they?
3) Is there a subgame perfect equilibrium? Explain.
4) If you were the potential entrant, would you enter? Explain why or why not.