-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.Assuming a fixed cost of entry,the outcome will be that the incumbent
A) deters entry.
B) chooses the Stackelberg leader level of output but the potential entrant does not enter anyway.
C) chooses the Stackelberg leader level of output and the potential entrant enters.
D) deters entry and earns zero profit.

Question

-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.Assuming a fixed cost of entry,the outcome will be that the incumbent
A) deters entry. 
B) chooses the Stackelberg leader level of output but the potential entrant does not enter anyway. 
C) chooses the Stackelberg leader level of output and the potential entrant enters. 
D) deters entry and earns zero profit.

Quizplus · Accepted Answer

The incumbent firm can deter entry by choosing a level of output (or setting a price) that makes it unprofitable for the potential entrant to enter the market. This strategy ensures the incumbent maintains its market position and profitability, even if it means accepting lower profits than in a monopoly situation to keep the market unattractive for new entrants.

-The Above Figure Shows the Payoff Matrix Facing an Incumbent