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8. Assume a linear market demand curve and a concave average cost curve for the following...

8. Assume a linear market demand curve and a concave average cost curve for the following questions:

(a) Show how an incumbent can keep an entrant out of the market by threatening to produce a large quantity.

(b) Why might this behavior be irrational if an incumbent actually faces an entrant?

(c) Explain how the purchase of additional capacity (even if it is never used) can make the previous behavior rational. What is meant by additional capacity in practice?

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