An existing firm offers to supply one unit of a good to a potential buyer by writing a contract in period 1 for delivery in period 2. The contract specifies a price of $210 and a breach of contract fee of $150. The buyer would be willing to pay $330 and the existing firm has a marginal cost of $120. A potential entrant firm has costs uniformly distributed and competes in Bertrand competition with the existing firm if entry occurs. It is known that the entrant's costs are less than or equal to $240. How much extra profit would the entrant earn if there were no contract in place between the existing firm and the buyer? Select one: O a. $31.50 O b. none of the other answers Oc. $28.50

An existing firm offers to supply one unit of a good to a potential buyer by writing a contract in period 1 for delivery in period 2. The contract specifies a price of $210 and a breach of contract fee of $150. The buyer would be willing to pay $330 and the existing firm has a marginal cost of $120. A potential entrant firm has costs uniformly distributed and competes in Bertrand competition with the existing firm if entry occurs. It is known that the entrant's costs are less than or equal to $240. How much extra profit would the entrant earn if there were no contract in place between the existing firm and the buyer? Select one: O a. $31.50 O b. none of the other answers Oc. $28.50

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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