In the Entry-Prevention Game, the Incumbent Firm Makes an Implicit

question 3

Multiple Choice

In the entry-prevention game, the incumbent firm makes an implicit threat in period 0

• A) and definitely carries out the threat in period 1
• B) but may not want to carry out the threat in period 1
• C) but absolutely will not carry out the threat in period 1

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Definitions:

Producer Surplus

The difference between the amount that producers are willing and able to sell a good for and the actual amount they receive in the market.

Economic Rent

Income derived from the possession of a unique resource, exceeding that which is needed to keep the resource in its current employment.

Economic Profit

The profit from producing goods and services while considering both explicit and implicit costs, including opportunity costs.

Producer Surplus

The gap between the price that sellers are prepared to accept for a product and the real price it sells for in the market.