Question: A monopolist has a constant marginal and average cost of $10 and faces a demand curve of Q_D = 100 – 0.10P. Marginal revenue is given by MR = 100 – 0.20P.

a. Calculate the monopolist's profit maximizing quantity, price, and profit.

b. Now suppose that the monopolist fears entry, but thinks that other firms could produce the product at a cost of $15 per unit (constant marginal in average cost) and that many firms could potentially enter. How could the monopolist attempt to deter entry, and what would the monopolist quantity and profit be now?

c. Should the monopolist try to deter entry by setting a limit price? HINT

See pp. 257-258 in the textbook.