An incumbent firm, Firm 1,faces a potencial entrant, Firm2,that has a lower marginal cost.The market inverse demand function is p= 120 -Q1-Q2.Firm 1 has a constant marginal cost of $20,while firm 2 is $10 and they have no fixed cost.
1. What are the nash-cournot equilibrium price, quantities, and profits without government intervention?
2. To block entry,the incumbent appeals to the government to require that the entrant incur extra costs. What happens to the nash cournot equilibrium if the legal requirement causes the marginal cost of the second firm to rise to that of the first firm,$20?