A Single Firm That Charges the Monopoly Price in the Market

question 11

Multiple Choice

A single firm that charges the monopoly price in the market earns $500.If another firm successfully enters the market,the incumbent's profits fall to $325 and the entrant earns $250.If the incumbent engages in limit pricing,its profits are $400.For what interest rate,i,is limit pricing a profitable strategy for the incumbent?

• A) i < 0.75
• B) 0.75 < i < 1.0
• C) 1.0 < i < 1.33
• D) i > 1.33

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