What is the aspect of imperfect competition that is most distinct ...

[clmills979]

What is the aspect of imperfect competition that is most distinct from perfect competition?
 
  A) free entry/exit
  B) perfect information
  C) differentiated products
  D) zero profits

Question 2

Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?
 
  What will be an ideal response?

[wshriver]

Answer to Question 1

C

Answer to Question 2

Firm B's reaction function is qB = 5 - (1/2)qA. The Stackelberg leader quantity is 5 and firm B will produce 2.5. Firm A's profit is 12.5. If firm A produces 6 units for example, firm B's best response is 2 units; however, it would incur a loss and not enter. Firm A's profits by preventing entry would be 24. Thus, firm A can deter entry by overproducing.