Smyth Industries Operated as a Monopolist for the Past Several

question 14

Multiple Choice

Smyth Industries operated as a monopolist for the past several years,earning annual profits amounting to $50 million,which it could have maintained if Jones Incorporated did not enter the market.The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually.The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit) .One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year.The estimated impact of such a move is a loss of $1 billion.Ignoring antitrust concerns,compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest rate is 5 percent.

• A) $100 million
• B) $200 million
• C) $210 million
• D) $1.05 billion

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Definitions:

Variable-Ratio

A schedule of reinforcement where a response is reinforced after an unpredictable number of responses, often used in behaviorist conditioning.

Vending Machine

A machine that dispenses small articles such as snacks, beverages, alcohol, cigarettes, or lottery tickets to customers automatically, after the customer inserts currency or credit.

Coin

A piece of metal issued by governmental authority as money.

Discriminative Stimulus

A signal in the environment that increases the likelihood of a particular response because it indicates that a specific reinforcement is available.