Consider an Incumbent That Successfully Links the Pre-Entry Price and Post-Entry

question 79

Multiple Choice

Consider an incumbent that successfully links the pre-entry price and post-entry 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 million 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 $1.905 million is less than $2 million.
• C) No since $4 million is less than $4.2 million.
• D) Linking the pre-entry price to the post-entry profit is sufficient to guarantee the profitability of limit pricing.

---

Definitions:

Organizational Culture

encompasses the values, beliefs, and behaviors that contribute to the unique social and psychological environment of an organization.

Social Differentiation

The process by which societies or groups within them are separated into different categories or classes based on various factors like wealth, occupation, and social status.

Common Values

refer to shared beliefs or standards within a group or organization that influence behavior and decision-making processes.

Personal Sacrifices

Acts of giving up one's own interests, comfort, or possessions for the sake of others or for a larger purpose.