1. An incumbent, rm 1, faces a potential entrant and can pre-purchsse capacity in an attempt to deter entry. The entrant, rm 2, observes the amount of capacity Chosen by rm 1 before its entry decision Each rm needs a unit of capacity to produce a unit of output, and capacitycosts 1 per unit. Market demand isp= 5Q, wherepis price, and Q is market quantity. Let E denote the amount of capacity that rm 1 purchasm prior to rm 2's entry decision. Any postentry competition is standard Cournot competition. a) Suppose that rm 1 purchases no capacity in the initial period. Compute the resulting equilibrium quantities and prots in the postentry period given that rm 2 has entered. Show this equilibrium on a graph. b) Suppose that rm 1 has purchased 3 units of capacity in the initial period. Compute the resulting equilibrium quantities and prots in the postentry period given that rm 2 has ' entered. Show this eqrlihrium on a graph. c) Show on a graph the post-entry equilibrium if rm 1 purchases 1.5 units of capacity. d) If entry is costless, solve for rm 1's equilibrium choice of capacity if it does not deter entry. Given this choice of capacity. solve for both rm's equilibrium post-entry quantities and prots. e) Can rm 1 deter entry in this case? Explain. f) Now suppose the cost of entry is 1.4. Solve for the level of initial capacity that will deter entry in this case. 3) Will rm 1 choose to deter entry when the entry cost equals 1.4? Explain