SunCenter Is the Only Firm in Its Industry

question 8

Essay

SunCenter is the only firm in its industry.Currently, SunCenter charges $75 per unit, a price well in excess of its marginal cost of $5 per unit, and earns $70 million per year in profit.According to a trusted source, the manager of SunCenter learned that a new firm is contemplating entering the market.This would reduce its profit to $40 million per year.By expanding its output and lowering its price to $50, the entrant would find it unprofitable to enter the market and SunCenter would earn profits of $50 million per year for the indefinite future.
a.What pricing strategy is the manager of SunCenter considering?
b.If SunCenter was able to credibly commit to maintain a price of $50, would it be a profitable strategy? Explain.

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Definitions:

Positivism

A philosophical approach asserting that knowledge should be based on empirical and scientific evidence rather than theories.

Scientific Revolution

The period in history during the 16th and 17th centuries marked by major advances in science, transforming views of society and the natural world.

Ascribed Status

A social position assigned to an individual at birth or assumed involuntarily later in life, often based on race, ethnicity, gender, and family background.

Oprah Winfrey

An influential American media executive, actress, talk show host, television producer, and philanthropist, known for her talk show "The Oprah Winfrey Show."