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If the firm is concerned that its profits will induce potential
entrants to find the funds necessary to cross the barriers to
entry it could lower price to PC and raise output to QC.
The monopolist has excess capacity and can easily increase
output and lower price, even though this would reduce its profits. The monopolist's profits are reduced from the green shaded area to the blue shaded area, a considerable
reduction.
Potential entrants may see this as a formidable entry barrier.
The potential may be sufficient to keep out new entrants, the
firm may never need to increase output.
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