A monopolist has a marginal cost of 10 and no fixed cost. It faces the following inverse demand curve: p = 80 - q. The monopolist can engage in an advertising campaign that leads to a new inverse demand curve represented by p = 100 - q. What is the maximum amount that the monopolist is willing to spend in this campaign?
A) 650
B) 800
C) 1,000
D) It cannot be determined.
Question 2
If an incumbent faces an identical potential entrant with no costs of entry, the incumbent will
A) produce the Cournot duopolist level of output.
B) produce the Stackelberg leader level of output.
C) set price equal to marginal cost.
D) shut down.
A graphical representation of the marginal value theorem.
Faces
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