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Consider an industry with two products A and B. There are 100 consumers who value product...

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Economics

Consider an industry with two products A and B. There are 100 consumers who value product A at vA=160 and product B at vB=290. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=90 and cB1=120 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant, firm 2, who only produces good B at a marginal cost of cB2>0. This firm has to pay K=20 to enter the market. If it enters, it set a price p2 for good B and competes with the incumbent in prices for the consumers. Consider a game where the entrant decides whether to enter or not. Then if entry occurs, firms compete; otherwise firm 1 remains a monopolist. For which value of cb2 does firm 2 enter the market and make a total profit of $1800?

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