The diagram below shows a profit-maximising monopolist's cost and revenue curves; the firm only incurs fixed costs of production and no variable costs. Costs and Revenue 0 D MR The price set by the firm will be ATC AR Output

Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?

How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?

Imagine that you ale managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10 less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?