Q.11 Consider a market with two firms (firm 1 is an incumbent and firm 2 is a potential entrant). Firms produce homogeneous goods, compete in quantities and face a constant marginal cost of 1/4. The timing is the following. First, firm 1 chooses its quantity 91 . After observing this choice, firm 2 decides whether to enter. If it enters, it chooses quantity 92. The inverse demand function in the market is P(q) = 1 - q where q is total quantity. Suppose that the entry cost e for firm 2 is such that entry is blockaded. How much will firm 1 produce in equilibrium? Max. score: 2.5; Neg. score: 1.5 1/4 3/4 3/8 O The answer depends on e