Assume that there is only one incumbent in the pharmaceuticals industry and its output is qi. Market demand is given by the equation P= 100-q. There is a potential entrant to this industry and its...

Assume that there is only one incumbent in the pharmaceuticals industry and its output is qi. Market demand is given by the equation P= 100-q. There is a potential entrant to this industry and its output is qe. Both firms have the same cost of production (Total Cost =

400+10q) Incumbent will choose qi to make the entrant’s profit equal to zero. This will happen if the residual demand curve of the potential entrant is tangent to its Average Cost curve.

a) Find the points which residual demand curve must cross in terms of q and p and its slope.

b) What is the entry deterring output for the incumbent firm with this demand?