Limit Pricing in a Contestable Market Sets the Price at the Highest

question 103

Multiple Choice

Limit pricing in a contestable market sets the price at the highest level that

• A) maximizes the profit of an entrant.
• B) maximizes the profit of the existing firm.
• C) maximizes the profit of both the existing firm and the entering firm.
• D) inflicts a loss on an entrant.

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Definitions:

Overhead Cost

Expenses related to the day-to-day running of a business that are not directly tied to a specific product or service.

Supply Costs

The expenses incurred in acquiring the materials and services necessary for production or operations.

Square Feet

A unit of area measurement equal to a square that measures one foot on each side, commonly used in the United States.

Spending Variance

is the difference between the actual amount spent on materials, labor, or overhead and the budgeted amount for these items.