A common answer in micro and macro
This task consists of two parts. They are indirectly related, and the answers to them are somewhat similar. If you answer part (a) correctly, it'll be easier for you to come up with a correct answer to (b), and vice versa.
(a) (15 rp) It often happens that, under the threat of entry of a competitor, an incumbent monopolist lowers the price even before the entry actually occurs. But this monopolist's behaviour is, at first glance, irrational as the price before entry has no effect on the prices and quantities after entry and thus the pre-entry price cannot affect the entrant's decision to enter and eventually deter entry. Lowering the pre-entry price relative to the optimal price only causes the incumbent to lose the pre-entry profits. Propose a simple verbal model in which such monopolist's behaviour is nevertheless rational.