The gadget industry has four firms. All the firms have constant marginal cost, MC = 9 and their fixed cost is sunk. The market demand for gadgets is G = 400 40P

Firm 1, and only firm 1, can discover a new production method that will reduce its fixed marginal cost from MC = 9 to MC = 4. However, with the new technology firm 1 will face capacity constraints. The cost of discovering and implementing the new production method are 1+k 2/2 where 1 is a fixed (but not sunk!) cost of conducting the research and development and k is the capacity constraint.

Assume firm 1 expects that after it deploys its new method, firms 2, 3 and 4 will remain active in the market. In this scenario, which price P does firm 1 expect to face?