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Consider a market with inverse demand given by P=80-Q. An incumbent firm with marginal cost 13 faces potential entry from another firm with the same
Consider a market with inverse demand given by P=80-Q. An incumbent firm with marginal cost 13 faces potential entry from another firm with the same marginal cost as the incumbent. The entrant must pay an entry fee of E in order to enter. Interpreting the firms' output choices as capacities and applying the Stackelberg model that we studied, if the entrant enters, what will be its choice of capacity?
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