Consider an industry in which firms produce undifferentiated product with differentiated production costs.AVC and MC are constant up to a capacity of one million units per year.Assume the industry can accommodate many firms producing at capacity and that the industry's most efficient firms can achieve an AVC of $1/unit.There are many potential entrants into this market,but due to imperfect imitation,not all can emulate the low-cost position.Before entering,a competitor believes there is a 25% probability its AVC will take on each of four values: $2,$4,$6,$8.Additionally,suppose the firm will incur the cost of building a factory when entering the industry.Factories cost $30 million to build and (for simplicity)never depreciate in value.If investors expect a return of 10% on their capital and the factory has zero scrap value,what will the equilibrium price be?

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The Answer of Consider an industry in which firms produce undifferentiated product with differentiated production costs.AVC and MC are constant up to a capacity of one million units per year.Assume the industry can accommodate many firms producing at capacity and that the industry's most efficient firms can achieve an AVC of $1/unit.There are many potential entrants into this market,but due to imperfect imitation,not all can emulate the low-cost position.Before entering,a competitor believes there is a 25% probability its AVC will take on each of four values: $2,$4,$6,$8.Additionally,suppose the firm will incur the cost of building a factory when entering the industry.Factories cost $30 million to build and (for simplicity)never depreciate in value.If investors expect a return of 10% on their capital and the factory has zero scrap value,what will the equilibrium price be?

Consider an Industry in Which Firms Produce Undifferentiated Product with Differentiated