An incumbent is considering expanding its capacity. It can do so in one of two ways. It

Question:

An incumbent is considering expanding its capacity. It can do so in one of two ways. It can purchase fungible, general purpose equipment and machinery that can be resold at close to its original value. Or it can invest in highly specialized machinery that, once it is put in place, has virtually no . Assuming that each choice results in the same production costs once installed, under which choice is the incumbent likely to encounter a greater likelihood of entry and why?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...