If a Dominant Firm Follows a Strategy of Limit Pricing

question 60

Multiple Choice

If a dominant firm follows a strategy of limit pricing, this firm charges a price _________ the current profit-maximizing level in order to _____________.

• A)equal to; maximize profits.
• B)below; reduce the rate of expansion by the fringe.
• C)above; drive out the fringe.
• D)below; limit dominant firm's marginal cost.

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Definitions:

Monopolist

An individual or firm that holds a monopoly in a particular market, having exclusive control over the supply of a good or service and, therefore, substantial market power.

Cournot Model

An economic model describing an industry structure in which companies compete on the amount of output they will produce, which they decide independently and at the same time, leading to a state of equilibrium.

Maximize Profits

The process or strategy employed by businesses to increase their net earnings to the highest possible level.

Cartel

An association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.