4. ENTRY DETERRENCE A large incumbent firm is deciding it's capacity in a new market. The executives know that an Entrant will observe their capacity and decide whether to enter the market or not. Should the entrant enter, they will decide what capacity to set. The incumbent can select one of three possible capacities: Large, Very large or Mega Large. The Entrant can select to stay Out or to build a Mini, Small or Medium sized plant. In the absence of any entry costs to the entrant payoffs are given by: Entrant Out Mini Small Medium Large 2350,0 1530,768 1480,834 1390,992 Incumbent Very Large 2850,0 1470,726 1380,770 1220,726 Mega Large 2435,0 1350,686 1180,654 1020,620 (1) Assume now that the entry costs equal 850. What capacity will the Incumbent build? (2) What is the highest amount that entry costs can take such that the Incumbent will accommodate? 3) For what values of the entry cost will the Incumbent select an entry deterrence strategy