An incumbent firm is considering expanding its capacity

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An incumbent firm is considering expanding its capacity. It can do so in two ways. It can purchase fungible general purpose equipment and machinery that can be resold at close to its original value. Alternatively, 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 what scenario is the incumbent likely to encounter a greater likelihood of entry? Explain.

Reference no: EM132389437

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