You are considering entry into a market in which there is currently only one producer (incumbent). Entry will require $20k in fixed costs per year (avoidable at the end of each year). If you enter, the incumbent can take one of two strategies, price low or price high. If they price high, then you expect a $60k profit per year. If they price low, then you expect a $20k loss per year. You should enter if you believe:

	A	Demand is inelastic
	B	The probability that the incumbent will price low is greater than 0.75
	C	The probability that the incumbent will price low is less than 0.75
	D	The entry decision depends on the size of the market

Answer rating: 100% (QA)

Formula Expected profit P x Pr P Pr Where R Probability of high pri... View the full answer