ECON331 - 1Il'il'eek 6 Seminar: Cartels and Entry deterrence Question 1 Suppose that market demand is describe by P: 100 {Q+q] , where P is the market price, Q is the output of the incumbent firm, and q is the output of a potential entrant to the market. The incumbent rm's total cost function is TClQl= 4Q , whereas the cost function of the entrant is CIq]: 100+4Uq , where 100 is a sunk cost incurred to enter the market. a] If the entrant observes the incumbent producing 0.; units of output and expects this output level to be maintained. write down the equation of the residual demand curve that the entrant rm faces. b] If the entrant rm maximises prot given the residual demand curve in {a} what output q\"a will the entrant produce? [Your answer should be a function of Qn } c] How much output would the incumbent firm have to produce to just keep the entrant out of the market? That is, solve for the limit output Q . At what price will the incumbent sell the limit output