and fixed cost F = 100. Solve for the equilibrium market price, each firm’s level of output, and equilibrium profits for both firms, when the incumbent accommodates entry.

(b) Now suppose the incumbent deters entry. Solve for market price, and output and profits of each firm. Would the incumbent firm rather accommodate or deter entry? Explain your answer.

(c) Now suppose F = 25. Repeat Exercises 2

(a) and 2(b). Would the incumbent want to follow the same strategy as in Exercise 2(b)? Relate your answer to the cost of entry deterrence.