In Section 8.1.2, we showed that when the market demand function was given by p =120 – (K1

+ K2

), the incumbent firm deterred entry by producing the level of output and earned profits 1d

, given by:

If the incumbent accommodated entry, the incumbent earned profits in the Stackelberg equilibrium given by:

1s

= (60 – c/2) · (30 – c/4) – F The incumbent firM1 and the entrant firm 2 produced output given by:

(a) Suppose marginal cost c =