A monopolist has a constant marginal and aver- age cost of $10 and faces a demand curve of QD = 1000 - 10P. Marginal revenue is given by MR = 100 - 1/5Q.
Calculate the monopolist's profit-maximizing quantity, price, and profit.
Now suppose that the monopolist fears entry, but thinks that other firms could produce the product at a cost of $15 per unit (constant mar- ginal and average cost) and that many firms could potentially enter. How could the monopo- list attempt to deter entry, and what would the monopolist's quantity and profit be now?
Should the monopolist try to deter entry by set- ting a limit price?