Professor Binmore Has a Monopoly in the Market for Undergraduate

question 34

Multiple Choice

Professor Binmore has a monopoly in the market for undergraduate game theory textbooks.The time-discounted value of Professor Binmore's future earnings is $2,000.Professor Ditt is considering writing a book to compete with Professor Binmore's book.With two books amicably splitting the market, the time-discounted value of each professor's future earnings would be $200.If there is full information (each professor knows the profits of the other) , under what conditions could Professor Binmore deter the entry of Professor Ditt into his market?

• A)Professor Binmore threatens to cut his price so that Professor Ditt would loose $200.In so doing, Professor Binmore would loose $20 over time.
• B)Professor Binmore threatens to cut his price so that Professor Ditt would loose $20.In so doing, Professor Binmore would just break even over time.
• C)Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would loose $2.In so doing, Professor Binmore would still make $190 over time.
• D)Professor Binmore threatens to cut his price and attack the credibility of Professor Ditt's book so that Professor Ditt would only make $2.In so doing, Professor Binmore would still make $100 over time.
• E)None of the above.

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Definitions:

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditures to the appropriate period.

Accrued Fees

Accrued Fees refer to charges incurred by an entity for services performed but not yet billed or paid at the reporting date.

Adjusting Entry

An accounting record entry, created at the conclusion of an accounting cycle, that distributes earnings and expenses to their respective years.

Unearned Fees

Income received by a company for services to be provided in the future; recognized as a liability until the services are rendered.