An Incumbent's Threat to Use Limit Pricing If a Firm

question 34

Multiple Choice

An incumbent's threat to use limit pricing if a firm enters the market

• A)is credible if the firms have identical costs and market demand supports both firms.
• B)is credible if the firms have different costs and market demand won't support both firms.
• C)is not credible if the firms have different costs and market demand won't support both firms.
• D)is cheap talk, because the other firm will enter, and the incumbent will still be able to charge monopoly pricing.

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Definitions:

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