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A monopolist observes that a potential rival is poised to enter the market

Economics

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A monopolist observes that a potential rival is poised to enter the market. The monopolist can invest in an expensive piece of equipment that will significantly lower its marginal cost, but will raise its total costs. Should the monopolist make the investment? A. No. Lowering marginal cost would force the firm to overproduce. B. Yes, if the investment deters entry and the post investment profit is higher than post entry profit without the investment. C. Yes, but only if the potential entrant cannot make the same cost lowering investment. D. No. This action is not profit maximizing; the higher total cost will cause the firm to lose money.
Learning by doing can only be a strategic cost advantage for an incumbent facing potential entry if: O A. the firm can significantly lower its marginal cost relative to its rivals' and learning is extremely rapid. B. learning occurs rapidly enough that the firm can gain a significant marginal cost advantage over its rivals. O C. learning occurs slowly enough that rivals are unable to catch up. OD. the firm can significantly lower its marginal cost relative to its rivals' and learning is not too rapid.