There is no threat of entry by competitors.

So we're going to relax that in the coming video, but for now, we'll just

assume that there is no potential entrant that could come, and take the place of the

monopolist. What are the profits of the monopolist

without innovation? Again, we're facing production costs of

300 Euros. And we can basically set one of two

prices. Either 500 Euros and sell to the

high-value consumers, or 400 Euros and sell to all consumers.

So, with 500 Euros, we get 60 consumers that buy the motorbike, and we get

profits of 60, that's the number of consumers, times 500, that's the sales

price minus 300, that's the production cost, which is going to be 60 times 200

equal to 12,000, right? So, if we set a price of 500 Euros our

profits are going to be 12,000. But if we set a price of 400 Euros?

Well, in that case, we're going to sell to everyone.