Suppose the market demand for a good is given by P = 190 â€“ 3Q. Also, there is an incumbent firm already in the market, and a potential entrant. Letâ€™s call the incumbent firm 1, and the potential entrant Firm 2. Each firm has an identical Total Cost of production given by TC = 675 +10q, where q is the quantity of output produced by that firm. MC for each firm = 10.a) Suppose Firm 1 wishes to produce a quantity of output so that the maximum profit the entrant could make is $0. How much output should Firm 1 produce (show your work)?b) What is Firm 2â€™s Best Response function?
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