Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:b. Consider an industry consisting of an incumbent (M) and an entrant (E). Each year,
market demand for this industry is given by P = 640 – (qm + qE), where P is price and q is
quantity. The incumbent firm faces costs of CM(qm) = 170(qm). The potential entrant faces
costs of CE(qE) = 170(qE) + F, where F is the fixed cost of entering the industry.
(i) For this industry, explain under what conditions the incumbent (M) can profitably
deter the entrant (E) from entering.
%3D
Transcribed Image Text:(ii) If the incumbent (M) cannot profitably deter entry, what strategy should M follow?
Explain your answer.
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