Monopolist's output and residual demand curve.
A potential entrant can produce at the same cost as the monopolist illustrated in the figure below. The monopolist's demand curve is given by Dm and its average cost curve is AC.
1.What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve, DR?
2. describe how much profit will the monopolist earn if it commits to the output that generates the residual demand curve, DR?
3.Can the monopolist profitability deter entry by committing to a different level of output? describe.