let the domestic market for small, specialized calculators and similar office equipment be currently served by one firm, called firm 1. The firm has the following cost schedules:
tc(q1)=0.035q1^2 and mc(q1)=.05q1
market demand is p=50-.1Q, and right now q is equal to q1 because the only firm in the market is the incumbent firm 1.
a. if the incumbent acts as a simple monopolist what price will it charge and what level of output will it produce?
b. suppose now that a foreign producer of calculators is considering exporting to the U.S. market. Because of transportation costs and tariffs this foreign firm faces some cost disadvantage vis-a-vis the domestic incumbent. specifically the foreign firm's cost schedules are:
TC(qE) = 10qE + 0.025qE^2 and Mc(qE)=10+.05qE.
Suppose that the incumbent firm is committed to the monopoly level of output. What is the demand curve faced by the potential entrant? Write it down. Facing this demand what level of output will the foreign firm actually export to the domestic market? What will be the new industry price?
c. To what level of output would the incumbent firm have to commit in order to deter the foreign firm from entering the market? What is the incumbent firm's profit?