A Single Firm That Charges the Monopoly Price in the Market

question 56

Multiple Choice

A single firm that charges the monopoly price in the market earns $1,300.If another firm successfully enters the market,the incumbent's profits fall to $700 and the entrant earns $575.If the interest rate is 0.5,how high must the firm's profits from limit pricing be for limit pricing to be a profitable strategy for the incumbent?

• A) π^L > $200
• B) π^L > $500
• C) π^L > $900
• D) π^L > $1,000

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Definitions:

Standard Cost Systems

Accounting systems that use standards for each element of manufacturing cost entering into the finished product.

Standards

Agreed-upon guidelines or criteria for products, services, or processes to ensure consistency and quality.

Product Costs

Expenses directly tied to the production of goods or services, including direct labor, direct materials, and manufacturing overhead.

Standard Cost

A predetermined cost of manufacturing a single unit or a number of units during a specific period under current or anticipated operating conditions.