Suppose an entrant is analyzing whether to enter a currently monopolized market. Market demand is P = 200 - Q. The marginal cost of production of the entree is $ 50. The entrant does not know the marginal cost of the established one, but he does know that this can be $ 30 or $ 70 with a 50% probability each. The irreversible cost of entry for the entrant is $ 2000. Suppose firms compete with Cournot. (30 pts., 15 each)

a. Will the entrant enter this market or not? Justify your answer

b. If the established one is low cost, what price will it charge in the first

period in order to signal, in balance, its true cost? Why will this signage be credible? Justify your answer