With entry,ocal welfare is $32(consumer surplus)plus$12 (industry profit).or$44 Social wefre withentry but entry produer consumer线. The equilibrium price falls with entry,and therefre potential competition can limit market power. Note that Defendo has one other option:to increase quantity from the monopoly level of 6 to discourage entry by Offendo.If Defendo increases output from 6 to 8 under Technology A.Offendo is unable to earn a positive profit.With an output of 8 Defendo's eases from $26to 812·(10+(88=$22 As before,with an output of onumer supus welfare is$54.In this case,social welfare rises when output is increased to discourage entry. 11.Three contestants,A,B,and C,each have a balloon and a pistol.From fixed positions,they fire at each other's balloons.When a balloon is hit,its owner is out.When only one balloon remains,its owner is the winner ofa S1000 prize.At the outset.the plavers decide by lot the order in which they will fire,and each player can choose any remaining balloon as his target. Everyone knows that A is the best shot and always hits the target. that B hits the target with probability.9,and that C hits the target with probability 0.8.Which contestant has the highest probability of winning the $1,000?Explain why. Intuitively.C has the highest pmobability of winning though A has the highest probability of shooting the balloon Each contestantwants with the highest probability of 88。 By ollowing this strategy,each improve his chanoe of winning the game.A targets B because,by removing B from the game A's chance of winning becomes much greater.B's probability of success is greater than C's probability of success C will target A because.if C targets B and hits B then A will target C and win the game.B will follow asimilar gy,bec use if B targets Cand hit then A will target B and will win the game There re,both B and C increase their chance of winning by eliminating A first Similarly,A increases his chance of winning by eliminating B first.A complete probability te can be constructed to show that A's chance of winning is 8 percent.Bs chance of winning is32 percent,and C'schance of winning is60 percent. ctions whose bidder ite al er a ccessful bids turn ou financially worthwhile,because she is able to resell the antiques for a profit.On occasion,however,she travels to a nearby town to bid in an auction that is open to the public.She often finds that on the rare occasions in which she does bid successfully.she is disappointed-the antique cannot be sold at a profit Can you explain the difference in her success between the two sets of circumstances? When she bids at the home-town auction that is limited to other dealers she is bidding against peop whoare all going torethe antique if they win the bid.In this case,all of the bidders are limiting their bids to prices that will tend to earnWith entry, social welfare is $32 (consumer surplus) plus $12 (industry profit), or $44. Social welfare does not change with entry, but entry shifts surplus from producers to consumers. The equilibrium price falls with entry, and therefore potential competition can limit market power. Note that Defendo has one other option: to increase quantity from the monopoly level of 6 to discourage entry by Offendo. If Defendo increases output from 6 to 8 under Technology A, Offendo is unable to earn a positive profit. With an output of 8, Defendo’s profit decreases from $26 to (8)(12) - (10 + (8)(8)) = $22. As before, with an output of 8, consumer surplus is $32; social welfare is $54. In this case, social welfare rises when output is increased to discourage entry. 11. Three contestants, A, B, and C, each have a balloon and a pistol. From fixed positions, they fire at each other’s balloons. When a balloon is hit, its owner is out. When only one balloon remains, its owner is the winner of a $1,000 prize. At the outset, the players decide by lot the order in which they will fire, and each player can choose any remaining balloon as his target. Everyone knows that A is the best shot and always hits the target, that B hits the target with probability .9, and that C hits the target with probability 0.8. Which contestant has the highest probability of winning the $1,000? Explain why. Intuitively, C has the highest probability of winning, though A has the highest probability of shooting the balloon. Each contestant wants to remove the contestant with the highest probability of success. By following this strategy, each improves his chance of winning the game. A targets B because, by removing B from the game, A’s chance of winning becomes much greater. B’s probability of success is greater than C’s probability of success. C will target A because, if C targets B and hits B, then A will target C and win the game. B will follow a similar strategy, because if B targets C and hits C, then A will target B and will win the game. Therefore, both B and C increase their chance of winning by eliminating A first. Similarly, A increases his chance of winning by eliminating B first. A complete probability tree can be constructed to show that A’s chance of winning is 8 percent, B’s chance of winning is 32 percent, and C’s chance of winning is 60 percent. 12. An antique dealer regularly buys objects at home-town auctions whose bidders are limited to other dealers. Most of her successful bids turn out to be financially worthwhile, because she is able to resell the antiques for a profit. On occasion, however, she travels to a nearby town to bid in an auction that is open to the public. She often finds that on the rare occasions in which she does bid successfully, she is disappointed - the antique cannot be sold at a profit. Can you explain the difference in her success between the two sets of circumstances? When she bids at the home-town auction that is limited to other dealers, she is bidding against people who are all going to resell the antique if they win the bid. In this case, all of the bidders are limiting their bids to prices that will tend to earn