Consider an incumbent/monopolist with the following demand and marginal cost: P=300–Q; MC=$50. a. What is the profit maximizing price and output for the monopolist? What is the monopolist’s profit? b. Suppose there is a potential entrant, but the entrant has a cost disadvantage. The entrant’s MC = $75. Solve for the residual demand curve for the potential entrant (the entrant assumes that the monopolist will not change their total quantity from part a).
Consider an incumbent/monopolist with the following
a. What is the profit maximizing price and output for the monopolist? What is the monopolist’s profit?
b. Suppose there is a potential entrant, but the entrant has a cost disadvantage. The entrant’s MC = $75. Solve for the residual demand curve for the potential entrant (the entrant assumes that the monopolist will not change their total quantity from part a).
c. What is the entrant’s output, price, and profit? What is the monopolist’s profit?
d. What is the limit price that the monopolist could charge to deter entry?
e. Is the threat/promise of the monopolist to charge the limit price a credible threat, or is the monopolist better off accommodating entry? Explain briefly.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 4 images
