Consider an Incumbent Successfully Links the Preentry Price and Postentry

question 40

Multiple Choice

Consider an incumbent successfully links the preentry price and postentry profit to prevent entry.The incumbent's monopoly profit is $10 million.If a rival successfully enters the market, the incumbent's profits will fall to $4 million.If the incumbent lowers output to 25,000 units, its rival will stay out of the market resulting in an infinite stream of profits of $8 annually.Due to a recent loan default, the current interest rate is whopping 210 percent.Is limit pricing profitable for the incumbent?

• A)Yes, since $19.05 million is greater than $2 million.
• B)No, since $1.91 million is less than $2 million.
• C)No since $4 million is less than $4.2 million.
• D)Linking the preentry price to the postentry profit is sufficient to guarantee the profitability of limit pricing.

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Definitions:

Average Wages

The mean wage calculated by dividing the total wage bill by the number of wage earners; it represents the midpoint of wage distribution in a given area or sector.

Average Wages

The mean earnings of workers in a specific region, industry, or occupation, reflecting the general level of compensation.

Male Workers

Individuals who are male and participate in the workforce, contributing to the labor supply in various industries and sectors.

Female Workers

Female workers are individuals who identify as female and participate in the labor force, either through employment or seeking employment.