Suppose that the industry demand curve is given by P = 130 – Q. The monopolist/incumbent faces MC M M . Solve for the profit maximizing level of…

monopolist/incumbent faces MCMM.

Solve for the profit maximizing level of monopoly output, price, and profits.

Suppose a potential entrant is considering entering, but the monopolist has a cost advantage. The potential entrant faces costs MCPEPE. Assuming the monopolist/incumbent continues to profit-maximize, solve for the residual demand curve for the entrant.

Assume the potential entrant follows the Cournot assumption about the monopolist’s output (i.e., believes the monopolist will not change its quantity fixed once the entrant has entered). Solve for the potential entrant’s output, the industry price, and the potential entrant’s profit. What are the new monopoly profits?

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