A monopolist's demand curve is given by D^M and its average cost curve is AC in Figure 13-1. Suppose a potential entrant can produce at the same cost as the monopolist.
a. What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve, D^R?
b. How much profit will the monopolist earn if it commits to the output that generates the residual demand curve, D^R?
c. Is the level of output that generates the residual demand curve, D^R, enough for the monopolist to deter entry?

Question

A monopolist's demand curve is given by D<sup>M</sup> and its average cost curve is AC in Figure 13-1. Suppose a potential entrant can produce at the same cost as the monopolist. a. What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve, D<sup>R</sup>? b. How much profit will the monopolist earn if it commits to the output that generates the residual demand curve, D<sup>R</sup>? c. Is the level of output that generates the residual demand curve, D<sup>R</sup>, enough for the monopolist to deter entry?

Quizplus · Accepted Answer

The Answer of A monopolist's demand curve is given by D^M and its average cost curve is AC in Figure 13-1. Suppose a potential entrant can produce at the same cost as the monopolist. a. What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve, D^R? b. How much profit will the monopolist earn if it commits to the output that generates the residual demand curve, D^R? c. Is the level of output that generates the residual demand curve, D^R, enough for the monopolist to deter entry?

A Monopolist's Demand Curve Is Given by DM and Its

A Monopolist's Demand Curve Is Given by D^M and Its