Suppose a monopoly firm faces the inverse market demand P = 100 - Q. The monopoly firm produces at constant MC = 60 and FC = 0. A process innovation is available that will reduce MC to 40. The monopoly firm faces a potential entrant firm that will enter the market if it obtains the cost-saving innovation. Find the following and show steps of calculation: a. Maximum amount the entrant firm is willing to spend on the process innovation b. Maximum amount the incumbent monopoly firm is willing to spend on the process innovation.
