A Monopolist Earns $80 Million Annually and Will Maintain That

question 82

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.If the monopolist can earn $45 million indefinitely by limit pricing,should it do so?

• A) Yes, it will earn $225 million in present value if it does this.
• B) Yes, it will earn $270 million in present value if it does this.
• C) No, it will earn $225 million in present value if it does this.
• D) No, it will earn $270 million in present value if it does this.

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Definitions:

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord, which interprets sensory information and issues instructions based on past experience and current conditions.

Peripheral Nervous System

The peripheral nervous system is the part of the nervous system that consists of the nerves and ganglia outside of the brain and spinal cord, which connect the central nervous system to limbs and organs.

Afferent Nerves

Nerves that carry sensory information from the sensory receptors towards the central nervous system.

Efferent Nerves

Nerves that carry signals away from the central nervous system to effectors such as muscles or glands, facilitating action and response.