25.5 Business Application: Quitting Time: When to Exit a Declining Industry:

13 We illustrated in the text the strategic issues that arise for a monopolist who is threatened by a potential entrant into the market, and in Chapter 26, we will investigate firm entry into an industry where demand increases. In this exercise, suppose instead that an industry is in decline in the sense that demand for its output is decreasing over time. Suppose there are only two firms left: a large firm L and a small firm S.