Fill in the blank Economics (Is not; will) (Is; will) (Is not;) (will not Is; will not) Monopoly?

Question

Consider an economy in which there is 1 firm Break fast, in the market for breakfast cereal. A new firm Tasty is deciding to enter the market which would change the market to a duopoly Assume that Healthy can choose to sell its cereal to grocery stores at a high price or a low price As a monopolist it can earn 8 million by selling at a high price or 5 million by selling at a low price If Tasty enters the market and Healthy sells at a high price each firm makes 3 million however if Tasty enters the market and Healthy sells at a low price each firm loses 1 million
The following diagram shows this game Tasty first decides whether to enter or not & then Healthy decides whether to sell at a high or low price
http://tinyurl.com/2t3y5y

Suppose that Healthy cant set longterm contracts with the grocery stores that sell its cereal Healthy issues a press release saying that if Tasty enters the market, it will sell at a low price This __ a credible threat & Tasty ___enter the market.

Answer 1

The production costs are not the important factor here. Sale price is. The monopoly will (in a free enterprise economy) lower price, often to a price below production costs, to keep competition out and keep its monopoly.
This IS a credible ......Tasty WILL NOT enter the market.
In a mixed economy, governments may have policies against reducing competition and predatory pricing. This will change the whole situation.

Answer 2

it is not a credible threat, and Tasty will enter the market. it is obviously in healthy's best interest to produce at a high price, since it would take on losses by producing low prices. Tasty sees that this is not a credible threat, so he will enter the market. they will end up with a profit of 3 each.
i know that's right because i just went over that the other day in game theory class.
are you taking game theory?