6. Assume a linear market demand curve and a concave average cost curve (i.e. increasing returns to scale for the following questions: (a) Show how an incumbent can keep an entrant out of the market by threatening to produce a large quantity. (b) Why might this behavior be irrational if an incumbent actually faces an entrant? (c) Explain how the purchase of additional capacity (even if it is never used) can make the previous behavior rational. What is meant by additional capacity in practice?

7. How would you define a barrier to entry without any additional feature of the market? Are returns to scale a barrier to entry? Why or why not? How would the presence of financial imperfections change your answer?

8. Give three reasons, many economists (including MacGee) believe that, in practice, predation (predatory pricing) is rare.