Smyth Industries Operated as a Monopolist for the Past Several

question 42

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,is it in Smyth Industries' interest to remain as a duopolist or engage in predatory pricing?

• A) Engage in predatory pricing since $210 million is greater than $200 million.
• B) Remain as a duopolist since $210 million is greater than $0.
• C) Engage in predatory pricing since $1.05 billion is greater than $1 billion.
• D) Remain as a duopolist since $210 million is greater than $100 million.

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Definitions:

Press Setup Cost

This refers to the expenses involved in configuring or preparing machinery for the manufacturing of a new batch of products.

Least-squares Regression

An approach within statistics aimed at establishing the best fitting line by lowering the sum of the squares of the discrepancies between observed and predicted data points.

Variable Cost

Expenses that change in direct proportion to the volume of production or output.

Titles Printed

The number of different book titles or publication names produced over a specific period.