Question: Consider a market with two firms, one incumbent and one potential entrant. They each produce an identical good. The entrant has a marginal cost of $5 per unit, while the incumbent has a marginal cost of $2.

The demand curve for the market is given by

In order to enter the market, the potential entrant must build a factory at a cost of $F.

1. If the market is based on a Cournot equilibrium, for what values of F (if any) will the new firm enter the market?
2. If the market is based on a Bertrand equilibrium, for what values of F (if any) will the new firm enter the market?
3. How would your answers change if the incumbent had a marginal cost of $1 per unit?

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