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This is my question: Two firms, Incumbent & Entron, can produce the same good. The market demand for the good is given by P =

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Two firms, Incumbent & Entron, can produce the same good. The market demand for the good is given by P = 180-Q, where P is the market price and O is the market quantity demanded. The firms must pay w = 45 per unit of output for labour and r = 45 per unit of output for capital (one unit of capital is used per unit of output), but Incumbent may choose capacity Krunits of capital before Entron decides whether to enter the market. Suppose firms each have fixed costs F1= FE= 600. Incumbent chooses (as a Stackelberg leader) capacity Krequal to the monopoly profit-maximizing quantity. When you answer the following questions, show your work What if all the parameters remained the same except the Entron's fixed cost were FE= 500? When you answer the following questions, show your work. a. Would Incumbent be able to prevent entry by choosing capacity Kequal to the monopoly profit- maximizing quantity? Explain. (1) + b. What is the Incumbent's equilibrium choice of capacity Kin this Dixit game? (2) + c. Does the Incumbent's choice of capacity Kin part (b) qualify as predatory conduct (here, limit output)? Explain. (1) +

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