Consider an Incumbent That Is a Monopoly Currently Earning $2

question 41

Multiple Choice

Consider an incumbent that is a monopoly currently earning $2 million annually.Given the declining costs of raw materials,the incumbent believes a new firm may enter the market.If successful,a new entrant would reduce the incumbent's profits to $1.2 million annually.To keep potential entrants out of the market,the incumbent lowers its price to the point where it is earning $1.6 million annually for the indefinite future.If the interest rate is 10 percent,does it make sense for the incumbent to limit price to prevent entry?

• A) No, since $4 million > $400,000.
• B) Yes, since $4 million > $400,000.
• C) No, since $2 million > $200,000.
• D) Yes, since $2 million > $200,000.

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Definitions:

Snob Appeal

A marketing or persuasion technique that targets people's desire for prestige or status, suggesting that using a product or service will elevate their social standing.

Ad Hominem

A fallacy in argumentation where the focus is on attacking the character of the person making an argument rather than addressing the argument itself.

SWOT Model

Used to analyze a company’s strengths, weaknesses, external opportunities, and threats.

Internal Assessment

An evaluation conducted within an organization or individual to assess performance, strengths, and areas for improvement.