Figure 8.2 shows that the best outcome for the incumbent firm is if new entry does
not take place. The new entrant makes a profit of 0 since it has not entered and the
incumbent firm makes a profit of 50. If the new entrant does attempt to enter, the best
solution for the incumbent firm is to accept entry and the accompanying lower profits.
If the incumbent decides to resist entry the resultant price war means that both firms
end up making losses. Since the new entrant knows this, it will enter the market and the
equilibrium position will be in the left-hand box, both firms making profits of 10.