In the Dixit-Spence model, the limit quantity is an output level for the incumbent that will drive the price down sufficiently to force the entrant

Question

Quizplus · Accepted Answer

The limit quantity in the Dixit-Spence model is the output level at which the incumbent firm will force the entrant out of the market by driving down the price to a level where the entrant cannot earn enough profits to cover its costs. Therefore, the entrant will be forced to exit the market, leaving the incumbent with a monopoly position.

In the Dixit-Spence Model, the Limit Quantity Is an Output