Consider a monopolist with the following demand curve P=390-2Q. The monopolist has 30. MC M= AC M
Question:
Consider a monopolist with the following demand curve P=390-2Q. The monopolist has 30. MCM=ACM=30 a. Solve for the profit-maximizing level of monopoly output, price and profits. b. Suppose a potential entrant is considering entering, but the monopolist has a cost advantage. The potential entrant has costs MCPE=ACPE=40. Assuming the monopolist continues to profit maximize, solve for the residual demand curve for the entrant. c. Assume the potential entrant follows the Cournot assumption about the monopolist's output. Solve for the potential entrant's output, price and profits in this scenario. What are the new monopoly profits? d. Is there a price the monopolist could charge to deter entry? Solve for the limit price and output that will completely deter entry. What is the monopoly profit at this point?