31. Return to Figure 9.2. Suppose P0 is $10 and P1 is $11. Suppose a new firm with the same LRAC curve as
the incumbent tries to break into the market by selling 4,000 units of output. Estimate from the graph
what the new firm’s average cost of producing output would be. If the incumbent continues to produce
6,000 units, how much output would the two firms supply to the market? Estimate what would happen to
the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately
how much profit would each firm earn?
32. Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the
quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the
monopoly’s product increases dramatically. Draw the new demand curve. What happens to the marginal
revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new
profit-maximizing quantity and price. Does the answer make sense to you?
234 9 • Critical Thinking Questions
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33. Draw a monopolist’s demand curve, marginal revenue, and marginal cost curves. Identify the
monopolist’s profit-maximizing output level. Now, think about a slightly higher level of output (say Q0 + 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?