Company A is the only supplier of glass in Big Apple City used for tall buildings’ exteriors. Its marginal cost of production is c_A=1, and it has no other production costs. The demand for such glass in Big Apple city is Q_D=2-P. Company B in Jersey City produces the same glass and is considering whether to expand to Big Apple city. If it enters, it needs to get a permit to allow it to be a supplier in the Big-Apple city at a cost of L=0.5, which does not vary with quantity of output, and its marginal cost of production is c_B=0.5. If it expands to the Big-Apple city, companies A and B both supply to the market, and the market price P satisfies Q_A+Q_B=2-P, where Q_A is company A’s production level and Q_B is company B’s.

Company B hires a consulting company to advise whether it should expand to the Big-Apple city. If you’re running the consulting company, what is your advice? 

Explain your advice. What is the largest value of the permit cost L such that you would advise company B to enter the market?

Answer rating: 100% (QA)

A Based on the information given it seems that company B should expand to the ... View the full answer