A Monopolist Earns $80 Million Annually and Will Maintain That

question 52

Multiple Choice

A monopolist earns $80 million annually and will maintain that level of profit indefinitely,provided no other firm enters the market.If another firm successfully enters the market,the incumbent's profits remain at $80 million the first period but fall to $35 million annually thereafter.The opportunity cost of funds is 20 percent,and profits in each period are realized at the beginning of each period.What is the present value of the firm's current and future earnings if entry occurs?

• A) $350 million
• B) $255 million
• C) $400 million
• D) $280 million

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Definitions:

Intrinsic Power

The capability or influence derived from an individual's inherent qualities or position, not dependent on external factors.

Military Power

The capacity of a nation's armed forces to use force or the threat of force to control situations and achieve specific objectives, often influencing international relations.

Technology

The application of scientific knowledge for practical purposes, especially in industry.

Modernity

is the cultural, philosophical, and societal outcomes stemming from the profound changes during the Renaissance, Enlightenment, and Industrial Revolution, emphasizing reason, individualism, and progress.