Consider a Monopolist Attempting to Engage in Limit Pricing with Total

question 59

Multiple Choice

Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 200 + 10Q.The market (inverse) demand for its product is P = 150 − 2Q.Currently,the monopolist produces 40 units of output.Assuming the potential entrant has the same cost structure as the incumbent monopolist,is it profitable for the entrant to produce 20 units of output?

• A) Yes, since the market price of $30 is greater than the average total cost of producing 20 units.
• B) No, since the market price of $30 is less than the average total cost of producing 20 units.
• C) Yes, since the market price of $70 is greater than the average total cost of producing 20 units.
• D) No, since the market price of $70 is less than the average total cost of producing 20 units.

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Definitions:

SCM

Supply Chain Management (SCM) is the oversight of materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer.

Inventory

Inventory refers to the total amount of goods and materials held in stock by a business, warehouse, or storage facility.

Goods And Services

Goods and services are the products and activities that satisfy human wants; goods are physical items, while services are non-tangible activities or benefits.

Push Model

A business model in which the production process begins with a forecast, which predicts the products that customers will want as well as the quantity of each product. The company then produces the amount of products in the forecast, typically by using mass production, and sells, or “pushes,” those products to consumers.