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Preventing entry of firms by a monopoly

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Please help me solve this problem...long-run effects.

Your firm sells a very popular children's game. As the manager, you have received information that another firm is thinking about introducing a similar game. You have the following facts:

Your average cost of production is constant at $20.
At the current monopoly price of $50, you sell 120 games per month.
You could prevent the entry of the second firm by increasing your output to 150 games per month and cutting the price to $40.
If the second firm enters the market, your price would decrease to $30 and you would sell only 80 games per month.

Should you prevent the entry of the second firm? Facts and figures.

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Solution Summary

Long run consequences of preventing entry of firms by a monopoly are provided in the solution.

Solution Preview

Your firm will want to keep its profits as high as possible. We can find the current level of profits by taking total revenue and subtracting total cost. Thus we have:
TC = 20 * 120 = 2400
TR = 120 * 50 = ...

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