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Suppose a monopoly firm faces the inverse market demand P = 200 - Q. The monopoly firm produces at constant MC = 120 and FC
Suppose a monopoly firm faces the inverse market demand P = 200 - Q. The monopoly firm produces at constant MC = 120 and FC = 0. A process innovation is available that will reduce MC to 100. The monopoly firm faces a potential entrant firm that will enter the market if it obtains the cost-saving innovation. Find the incentive to innovate for the incumbent firm. Show work.
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