Consider the producer of a branded drug that will soon go off patent and compete with generic versions of the drug. The average cost of production is constant at $8 per dose. The producer could prevent the entry of generics by committing to a limit price of $10. At this price, the firm will sell 100 doses per day. Alternatively, the producer could charge a price of $12 and passively allow generics to enter the market. The price elasticity of demand for the branded drug is 2.0