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There are two potential firms in an industry with demand P=130-Q. Both firms have a constant...

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.

a) How many firms will be in the market, and what is the industry level of output , and what is the profit

for each firm?

b) 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

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