An incumbent firm is considering expanding its capacity. It can do so in one of two ways. It can… 1 answer below »

An incumbent firm is considering expanding its capacity. It can do so in one of two ways. It can purchase fungible, general-purpose equipment and machinery that can be resold at close to its original value. Or it can invest in highly specialized machinery which, once it is put in place, has virtually no salvage value. Assuming that each choice results in the same production costs once installed, under which choice is the incumbent likely to encounter a greater likelihood of entry and why?

 

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