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Consider an industry with a homogeneous product where firms set output (or capacity) levels and price...

Consider an industry with a homogeneous product where firms set output (or capacity) levels and price is determinied by total output (or capacity). Suppose there is a large number of potential entrants and that each firm can choose one of two possible technologies, with cost functions Ci = Fi = ciqi  (i = 1,2).

A. Derive the conditions for a free-entry equilibrium.

B. Show, by means of a numerical example, that there can be more than one equilibrium, with different numbers of large and small firms.

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So there can be more than one equilibrium.

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