1. The market demand for a good is Q=120p. There is an incumbent firm (I) and a potential entrant (E), both with zero production costs but E has to pay a fee of 400 to start its operations. There are three stages:

i) I chooses irrevocably a level of capacity: K1

ii) the entrant observes it and chooses her own level of capacity: KE

iii) I and E compete by simultaneously setting prices.

What level of capacity should I choose in order to deter E's entry? (Answer format is one numeric value)

2.The market demand for a good is Q=120p. There is an incumbent firm (I) and a potential entrant (E), both with zero production costs but E has to pay a fee of 400 to start its operations. There are three stages:

i) I chooses irrevocably a level of capacity: K1

ii) the entrant observes it and chooses her own level of capacity: KE

iii) I and E compete by simultaneously setting prices.

What is the net benefit for the incumbent from implementing the deterrence strategy instead of accommodation? (Answer format is one numeric value.)

3.The market demand for a good is Q=120p. There is an incumbent firm (I) and a potential entrant (E), both with zero production costs but E has to pay a fee of 400 to start its operations. There are three stages:

i) I chooses irrevocably a level of capacity: K1

ii) the entrant observes it and chooses her own level of capacity: KE

iii) I and E compete by simultaneously setting prices.

For which range for the entry fee would I prefer to accommodate entry?

a) *f 1350 + 9002

b) *f >

c) *f > 1350 - 9002

d) *f < 1350 + 9002