Q1) A monopolist has constant marginal and average cost of $10 and faces demand curve of QD = 1000 - 10P. Marginal revenue is given by MR = 100 - 1/5Q.
a) Compute monopolist's profit-maximizing quantity, price, and profit.
b) Now assume that monopolist fears entry, but thinks that other firms could manufacture product at a cost of $15 per unit (constant marginal and average cost) and that many firms could potentially enter. How could monopolist attempt to deter entry, and what would monopolist's quantity and profit be now?
c) Should monopolist try to deter entry by setting limit price?