Bobby is a skilled mechanic who is also good at mowing lawns. he can mow his lawn faster and cheaper than the local lawn care service, weeds. bobby can earn fifty dollars an hour working as a mechanic. weeds charges fifteen dollars an hour to mow lawns. it only takes bobby one hour to mow his lawn, while it would take weeds two. should bobby mow his lawn or hire weeds to do it? a. it is bobby's comparative advantage to work as a mechanic because of the opportunity cost, so he should hire weeds to mow his lawn. b. it is bobby's absolute advantage to mow his own lawn because he can mow it faster than weeds, so he should mow his own lawn. c. since weeds has the absolute advantage in lawn care, bobby should hire them to mow his lawn. d. since weeds has the comparative advantage in lawn care, bobby should mow his own lawn.

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?