A Single Firm That Charges the Monopoly Price in the Market

question 57

Multiple Choice

A single firm that charges the monopoly price in the market earns $800.If another firm successfully enters the market,the incumbent's profits fall to $500 and the entrant earns $450.If the incumbent engages in limit pricing,its profits are $600.For what interest rate,i,is limit pricing a profitable strategy for the incumbent?

• A) i < 0.5
• B) 0.5 < i < 1.0
• C) 1.0 < i < 1.5
• D) i > 1.5

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Definitions:

State of Nature

The actual condition or reality of a situation which decision makers do not control and must consider in their planning.

Decision Nodes

Points within a decision tree at which choices are available, representing different paths that can be taken.

Alternative

A course of action or strategy that may be chosen by a decision maker.

Uncertainty

Uncertainty pertains to the degree of unknown aspects in situations, events, or outcomes, often quantified in risk assessments and decision-making processes.