A Question per day - Day 14

1. A firm competes in a monopolistically competitive market. Explain how a very popular/successful quality improvement by one firm would likely affect the firm in the short and (then) long run.

2. A firm operates as a monopoly until its patent expires. After the expiration of the patent, the firm faces entry from a set of price taking fringe firms. If the firm doesn't fight entry, then that entry will eventually cause the monopolist's profits to fall to zero (i.e. the firm will eventually earn zero economic profit). What issues does the firm face if it hopes to successfully use a limit pricing strategy?