Dennis is a member of the management team of a company that, until recently, was extremely profitable. As a result of a continuing recession; however, there has been a significant drop in profits, although the company is still making profits. The 196 non-permanent employees are low-skilled, but all of them have been with the company for at least 3 years. The lowest-paid worker earns at least double the minimum wage and the company provides all its employees the benefits required by law. Dennis will soon be attending a meeting of the management team to decide how many employees to retain. Dennis feels that the firm’s value lies in its employees, regardless of rank. Indeed, it was this culture of inclusiveness that led Dennis to join the firm in the first place. Dennis believes that employee retention is more than an issue of short-term profit maximization.

Required:
How can he give voice to his values in the upcoming meeting?

1. consider a two-firm industry. firm 1 (the incumbent) chooses a level of output qı. firm 2 (the potential entrant) observes qı and then chooses its level of output q2. the demand for the product is p 100 q, where q is the total output sold by the two firms which equals qi +q2. assume that the marginal cost of each firm is zero. a) find the subgame perfect equilibrium levels of qi and q2 keeping in mind that firm 1 chooses qi first and firm 2 observes qi and chooses its q2. find the profits of the two firms-n1 and t2- in the subgame perfect equilibrium. how do these numbers differ from the cournot equilibrium? b) for what level of qi would firm 2 be deterred from entering? would a rational firm 1 have an incentive to choose this level of qi? which entry condition does this market have: blockaded, deterred, or accommodated? now suppose that firm 2 has to incur a fixed cost of entry, f> 0. c) for what values of f will entry be blockaded? d) find out the entry deterring level of q, denoted by q1', a expression for firm l's profit, when entry is deterred, as a function of f. for what values of f would firm 1 use an entry deterring strategy?