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:

Stimulus Transduced

The conversion of a stimulus from the environment into a form that can be processed by the nervous system.

Sensory Adaptation

The process by which sensory receptors diminish their sensitivity to continuous stimuli, allowing organisms to focus on changes in their environment.

Action Potentials

Rapid, temporary changes in the electrical charge of a cell's membrane, crucial for nerve signal transmission.

Transduction

A process in genetics whereby foreign DNA is introduced into a cell by a virus or viral vector.