The demand function is given as follows: P = 50-Q, and the total cost function of the monopolist firm…

The demand function is given as follows: P = 50-Q, and the total cost function of the monopolist firm…

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The demand function is given as follows: P = 50-Q, and the total cost function of the
monopolist firm is, C = 16+ 2Q. There is a firm that plans to enter to the same market. Assume
that the potential firm has the same cost function.
a) What is the limit output of the monopolist firm that can deter entry? (Assume that the potential
firm believes that the incumbent monopolist will not change its output after entry.)
b) Is this a profitable strategy for the incumbent firm?

Expert Answer:

Answer rating: 100% (QA)

a To determine the limit output of the monopolist firm that can deter entry we need to find the level of output at which the potential firm would make
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