An Incumbent Usually Charges a Higher Price Than a New

question 120

Multiple Choice

An incumbent usually charges a higher price than a new entrant does.Which of the following is a plausible reason for this observation?

• A) An incumbent usually has a bigger bureaucratic body than a new entrant does and hence has a higher marginal cost.
• B) Consumers are risk averse, hence new firms charge lower prices to attract customers.
• C) The incumbent is ignorant of the new entrant, hence it is still charging the old high price.
• D) All of the statements associated with this question are correct.

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