Question Details

Economics Homework Help

Question

 Contestable markets.: In a market an incumbent monopoly facesthe following cost curve C(q)=F+cq where F>0 is a fixed cost andc>0 is the marginal cost of production. A potential entrantcontests the monopoly. However, due to second mover disadvantagethe potential entrant faces a cost curve C(q)=(F+B)+cq whereB>0. If the monopoly wants to prevent the entry of a new firm,what price and quantity it needs to sell? Show that thisconfiguration is feasible and sustainable (or at least specify theconditions under which this statement is true).