Problem: You are a potential entrant into a market that previously has had entry blocked by the government. Your market research has estimated that the market demand curve for this industry is:
P = 22,500 - 75Q,
where
You estimate that if you enter the market, your own cost function will be
Cy(Qy) = 50,000 + 3,000Qy.
The government has invited your firm to enter the industry, but it will require you to pay a one-time license fee of $100,000. You do not know the cost functions of the firms presently in the market; however, the price is now $16,000. Last year 87 units were sold by existing firms. Would you choose to enter this market? Explain.