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:

Marginal Cost Curve

The Marginal Cost Curve is a graphical representation showing the change in total cost that arises from producing one additional unit of a good or service.

Variable Input

An input in the production process that can be changed in the short run, such as labor and raw materials.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor of production, assuming all other factors remain constant.

Marginal Product

The additional output that is generated by adding one more unit of a specific input, holding all other inputs constant.