Consider an Incumbent That Successfully Links the Pre-Entry Price and Post-Entry

question 79

Multiple Choice

Consider an incumbent that successfully links the pre-entry price and post-entry profit to prevent entry.The incumbent's monopoly profit is $10 million.If a rival successfully enters the market,the incumbent's profits will fall to $4 million.If the incumbent lowers output to 25,000 units,its rival will stay out of the market,resulting in an infinite stream of profits of $8 million annually.Due to a recent loan default,the current interest rate is whopping 210 percent.Is limit pricing profitable for the incumbent?

• A) Yes, since $19.05 million is greater than $2 million.
• B) No, since $1.905 million is less than $2 million.
• C) No since $4 million is less than $4.2 million.
• D) Linking the pre-entry price to the post-entry profit is sufficient to guarantee the profitability of limit pricing.

---

Definitions:

Religiosity

The intensity and consistency of practice of a person’s (or group’s) faith.

Nuclear Family

A family unit that consists of two parents (of different sexes or the same sex) and their biological or adopted children, living together as a single household.

Industrial Revolution

A period of major industrialization that took place during the late 1700s and early 1800s, which transformed economies that had been based on agriculture and handicrafts into economies based on large-scale industry, mechanized manufacturing, and the factory system.

Symbolic Interactionism

A sociological perspective focusing on the ways in which individuals interact through symbols, including language, to create social realities.