Question: A potential entrant can produce at the same cost as the monopolist illustrated in the figure on the next page. The monopolist??s demand curve is

A potential entrant can produce at the same cost as the monopolist illustrated in the figure on the next page. The monopolist??s demand curve is given by DM, and its average cost curve is AC.a. What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve, DR?

b. How much profit will the monopolist earn if it commits to the output that generates the residual demand curve, DR?c. Can the monopolist profitably deter entry by committing to a different level of output?Explain.

Price 260 240 220 200 180 160 AC 140 120 100 DM 80 DR 60 40 20 Quantity 12 16 20 24 28 32 36 40 44 48 52 4.

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