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Consider two firms (Firms 1 and 2) and two market situations. In the first case, Firm 1 is the (only) incumbent and Firm 2 is
Consider two firms (Firms 1 and 2) and two market situations. In the first case, Firm 1 is the (only) incumbent and Firm 2 is the (only) potential entrant. Firm 1 uses limit pricing to deter Firm 2's entry. In the second case, both firms compete as duopolists by setting quantities (Cournot competition). How does the limit price compare with the price set by Firm 1 in the Cournot equilibrium? The limit price is higher than the Cournot equilibrium price. The limit price is equal to the Cournot equilibrium price. The limit price is lower than the Cournot equilibrium price
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