Consider the market for pizza. The market demand is given by P=100-Q. Currently, Pizza Palace is operating as a monopolist. Pizza Palace's marginal cost is MC=$10 per pizza, and the firm's marginal revenue is MR=100-2Q. Pizza Palace's (monopoly) price is $ and quantity is pizzas. Suppose a new firm, the Pizza Shack, is considering entering the market. If Pizza Shack opens, it will have a fixed cost of $500, and its marginal cost will also be $10. Suppose Pizza Palace threatens to drop its price to $20 per pizza if Pizza Shack enters the market. At a market price of $20, the total demand is pizzas. If Pizza Shack produced half this amount of pizzas at a market price of $20, its profits would be S Pizza Palace's threat credible, and therefore Pizza Shack enter the market.