You Are a Potential Entrant into a Market That Previously

Essay

You are a potential entrant into a market that previously has had entry blocked by the government. Your market research has estimated that the inverse market demand curve for this industry is P = 22,500 - 75Q, where . You estimate that if you enter the market, your own cost function will be C_y(Q_y) = 15,300Q_y. The government has invited your firm to enter the industry, but it will require you to pay a one-time license fee of $100,000. You do not know the cost functions of the firms currently in the market; however, the price is now $16,000. Last year 87 units were sold by existing firms. Would you choose to enter this market? Explain.