Consider a Monopolist Attempting to Engage in Limit Pricing with Total

question 44

Multiple Choice

Consider a monopolist attempting to engage in limit pricing with total costs, C(Q) = 100 + 2Q.The market (inverse) demand for its product is P = 100 - 2Q.Currently, monopolist produces 30 units of output.Assuming the potential entrant has the same cost structure as the incumbent monopolist, is it profitable for the entrant to produce 10 units of output?

• A)Yes, since the market price of $20 is greater than the average total cost of producing 10 units.
• B)No, since the market price of $20 is less than the average total cost of producing 10 units.
• C)Yes, since the market price of $50 is greater than the average total cost of producing 10 units.
• D)No, since the market price of $50 is less than the average total cost of producing 10 units.

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Definitions:

Observational Learning

A learning process through which behaviors are acquired by watching and imitating others.

Classical Conditioning

Form of learning in which a neutral stimulus becomes associated with a stimulus that naturally elicits a response, thereby making the neutral stimulus itself sufficient to elicit the same response.

Operant Conditioning

A learning process through which the strength of a behavior is modified by reinforcement or punishment.

Social-cognitive Learning

Learning through observing others’ behaviors, attitudes, and outcomes of those behaviors, emphasizing the importance of cognitive processes.