1. There are two potential firms in an industry with demand P=130-Q. Both firms have a constant marginal cost of production equal to $40. The fixed cost to both firms is $1300.

1. How many firms will be in the market, and what is the industry level of output, and what is the profit for each firm?
2. Would an incumbent firm that faces the possibility of entry from one firm prefer the above situation or would it prefer that both firms have a marginal cost of $20 and everything else remains the same? Explain

Answer rating: 100% (QA)

Lets analyze the situation step by step Situation 1 Both firms have a constant marginal cost of prod... View the full answer