D

1
If an incumbent monopolistsupplies Q at price
P,then entry is unprofitable--the residual
demand curvelies everywhere below LAC

The sustainable case
?
LAC
P
Residual demand
D
0
Quantity
Q
2
An entrant can offer output Q2 atprice P2 and
earn a normal profit.Hence entry is profitable
eventhough it is socially inefficient
The unsustainable case
Be aware that thecost functionis subadditiveat
Q3

LAC
J
K
P3
P2
P1
demand
N
0
Q1
Q2
Q3
Quantity