1. Answer the following on market power:

(i) Common sense might say that a monopolist would produce more output than a competitive firm facing the same marginal costs. After all, if you're making a profit, you want to sell as much as you can, don't you? What's wrong with this line of reasoning? Why do monopolistic industries sell less than competitive industries?

(ii) Do Monopolists charge a higher markup (have a higher Lerner Index) when customers have many good substitutes or when they have few good substitutes? Why?