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Demand Chart

The graph below represents the monthly demand for a specialized laser-cutting tool. Assume that there is only 1 firm in the world that manufactures this laser tool. Its marginal and average cost curves are shown. Answer the questions below based on this information.

a)Draw the firm's marginal revenue schedule.

b)What is the price that leads to the highest level of profits for this firm?

c)Show the area on the graph that represents the above normal profits earned at the profit maximizing price output combination.

d)Is this market a "natural monopoly?" Explain you answer.

e)Is the minimum efficient scale of production large relative to the market, absolutely large or both relatively& absolutely large?

f)What does your answer to (e) suggest about the height of barriers to entry?

g)If threatened with entry, how would this firm's pricing strategy likely change?

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