SunCenter Is the Only Firm in Its Industry

question 16

Essay

SunCenter is the only firm in its industry. Currently, SunCenter charges $75 per unit, a price well in excess of its marginal cost of $5 per unit, and earns $70 million per year in profit. According to a trusted source, the manager of SunCenter learned that a new firm is contemplating entering the market. This would reduce its profit to $40 million per year. If SunCenter expanded its output and lowered its price to $50, the entrant would find it unprofitable to enter the market, and SunCenter would earn profits of $50 million per year for the indefinite future.
a. What pricing strategy is the manager of SunCenter considering?
b. If SunCenter was able to credibly commit to maintain a price of $50, would it be a profitable strategy? Explain.

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Definitions:

Situational Leadership

A leadership model proposing that the most effective leaders adjust their leadership style based on the maturity and capability of their followers.

Different Kinds

Refers to the existence of various types or categories within a certain context, highlighting diversity and plurality.

Goal Accomplishment

The achievement of predetermined objectives or tasks, often marked by a sense of achievement and progress in personal, academic, or professional areas.

Directive Behaviors

Actions or approaches by leaders that provide clear instructions, guidance, or direction to their followers.