A Potential Entrant Knows That It Faces a (Inverse) Residual

question 46

Multiple Choice

A potential entrant knows that it faces a (inverse) residual demand curve given by P = 90 - 3Q. While the entrant does not know the inverse market demand, it does know that the incumbent committed to producing 10 units. Using this information, which of the following equations best summarizes the inverse market demand curve?

• A) P = 60 - 3Q
• B) P = 80 - 3Q
• C) P = 50 - 3Q
• D) None of the statements is correct.

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Definitions:

Self-Serving Bias

The common tendency to attribute positive events to one's own character but attribute negative events to external factors.

Better-Than-Average Effect

The cognitive bias where individuals overestimate their own qualities and abilities compared to others.

Displacement

A psychological defense mechanism in which emotional impulses are redirected from a real object to a safer, substitute target.

Defense Mechanism

Unconscious psychological strategies used to cope with reality and maintain self-image.