1. An incumbent, firm1, faces apotential entrant andcan prepurchase capacity in an attempt todeterentry. Theentrant, firm2, observes theamount ofcapacitychosenby firm 1 before its entrydecision. Eachfirmneeds aunit ofcapacitytoproduceaunit ofoutput, andcapacity costs 1 per unit. Market demand isp=5 Q, wherep is price, andQ is market quantity. Let kdenote the amount ofcapacity that firm1 purchases prior tofirm 2's entrydecision. Anypostentrycompetition isstandardCournot competition. a) Suppose that firmI purchasesnocapacity in the initial period. Compute the resulting equilibriumquantities andprofits in thepostentryperiodgiven that firm2 has entered Showthisequilibriumonagraph b)Supposethat firm1 haspurchased3unitsofcapacityinthe initial period Computethe resultingequilibriumquantities andprofits in thepostentryperiodgiven that firm2 has entered. Showthis equilibriumonagraph. c) Showonagraphthepostentry equilibri