Consider an Incumbent That Is a Monopoly Currently Earning $1

question 70

Multiple Choice

Consider an incumbent that is a monopoly currently earning $1 million annually.Given the declining costs of raw materials,the incumbent believes a new firm may enter the market.If successful,a new entrant would reduce the incumbent's profits to $750,000 annually.To keep potential entrants out of the market,the incumbent lowers its price to the point where it is earning $850,000 annually for the indefinite future.If the interest rate is 5 percent,does it make sense for the incumbent to limit price to prevent entry?

• A) No, since $2 million > $250,000.
• B) Yes, since $2 million > $250,000.
• C) No, since $5 million > $100,000.
• D) Yes, since $250,000 > $5 million.

---

Definitions:

Search Tools

Software features or utilities designed to help users find information or files on a computer or the internet.

Advanced Find

A search feature that offers extensive filtering and search criteria options to locate specific data or records within a software application.

Broaden

To expand or widen in scope, range, or extent.

Voting Buttons

Features in email and communication applications that allow recipients to cast a vote in response to a query directly within the message.