An industry consists of an incumbent (firm 1) and a potential entrant (firm 2). Each firm can produce output at a constant marginal cost of $3 per unit. The incumbent has already incurred a sunk cost F but the potential entrant must pay it if it enters. The inverse demand curve is P(Y ) = 12 Y , where Y is total output. The firms compete in quantities. Firm 1 choose its quantity q1 first. Firm 2 observes q1 and then decides whether or not to enter, the quantity it supplies is q2. (a) Suppose firm 2 enters. What is the best reply to firm 1's choice of q1. (b) Suppose F = 0. Determine the equilibrium prices, quantities, and profits. (c) How big would F need to be for firm 1 to profitably deter firm 2's entry?