. Consider an industry in which each firm can expect to sell 1000 units annually at a market price of P. However, before firms enter, they do not know what their production costs will be. Instead, they believe that their unit costs can be $2, $4, $6, or $8, with equal probability. Annualized sunk investment costs are $1500 - firms cannot recover these costs, should they choose to exit.

a. What is the equilibrium price at which firms are indifferent about entering?

b. What is the average profit of the firms that are producing? (Hint: firms will produce as long as the price equals or exceeds unit cost).