You are considering
entry into a market in which there is currently only one producer
(incumbent). Entry will require k 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:

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Question: You are considering entry into a market in which there is currently only one producer (incumbent)…
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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

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