Consider a Monopolist Attempting to Engage in Limit Pricing with Total

question 59

Multiple Choice

Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 200 + 10Q.The market (inverse) demand for its product is P = 150 − 2Q.Currently,the monopolist produces 40 units of output.Assuming the potential entrant has the same cost structure as the incumbent monopolist,is it profitable for the entrant to produce 20 units of output?

• A) Yes, since the market price of $30 is greater than the average total cost of producing 20 units.
• B) No, since the market price of $30 is less than the average total cost of producing 20 units.
• C) Yes, since the market price of $70 is greater than the average total cost of producing 20 units.
• D) No, since the market price of $70 is less than the average total cost of producing 20 units.

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