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Same cost structure as the incumbent monopolist

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Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 100 + 2Q. The market (inverse) demand for its product is P = 100 - 2Q. Currently, the monopolist produces 30 units of output. Assuming the potential entrant has the same cost structure as the incumbent monopolist, is it profitable for the entrant to produce 10 units of output?

Multiple Choice

  • yes, since the market price of $20 is greater than the average total cost of producing 10 units
  • yes, since the market price of $50 is greater than the average total cost of producing 10 units
  • no, since the market price of $50 is less than the average total cost of producing 10 units
  • no, since the market price of $20 is less than the average total cost of producing 10 units

Reference no: EM133084440

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