Firms often lobby for tariffs or quotas to provide relief from import competition.

a. Suppose that the monopolist shown in Figure 10-9 has a foreign competitor that will supply output perfectly elastically at a price slightly above the monopolist's

AC = MC but below P. Show the impact of the foreign competitor's entry into the market.

b. What would be the effect on the price and quantity if a prohibitive tariff were levied on the foreign good? (A prohibitive tariff is one that is so high as to effectively wall out all imports.) What would be the effect of a small tariff? Use your analysis to explain the statement, "The tariff is the mother of monopoly. "