An Incumbent Firm Uses Limit Pricing

question 47

Multiple Choice

An incumbent firm uses limit pricing

• A)to set price below a potential rival's marginal cost, thus making entry unprofitable.
• B)to set one price for a quantity of a good below a certain limit, and a second price for purchases above the limit.
• C)when it has no other advantages over a potential rival.
• D)if it is limited in the quantity of inputs it can purchase to produce output.

---

Definitions:

Competitive Equilibrium

A state where supply equals demand within a competitive market, setting the equilibrium price and quantity.

Nash Equilibrium

A concept in game theory where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Marginal Cost

The cost of producing one additional unit of a product.

Bertrand Duopoly

A market structure in which two companies compete on price, each one strategically setting its prices in response to the prices of the other.