a) Suppose a firm considers engaging in predatory pricing and knows the following informa- tion. The firm has a discount rate, r = .1. If they engage in predatory pricing, there will be 3 periods of losses of $30, 000 per period. However, once they are a monopoly they can have 6 periods of profit of $25, 000 per period. Based on this information, will the firm engage in predatory pricing?
a) Suppose a firm considers engaging in predatory pricing and knows the following informa- tion. The firm has a discount rate, r = .1. If they engage in predatory pricing, there will be 3 periods of losses of $30, 000 per period. However, once they are a monopoly they can have 6 periods of profit of $25, 000 per period. Based on this information, will the firm engage in predatory pricing?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 3SCQ: Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into...
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Please answer both a & b.
![a) Suppose a firm considers engaging in predatory pricing and knows the following informa-
tion. The firm has a discount rate, r = .1. If they engage in predatory pricing, there will
be 3 periods of losses of $30, 000 per period. However, once they are a monopoly they
can have 6 periods of profit of $25, 000 per period. Based on this information, will the
firm engage in predatory pricing?
b) Now suppose firms become less patient, and the discount rate isr = .5. Will the firm
still
engage
in predatory pricing?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc9df5acc-5434-41c6-b848-bee407d929c2%2Fe3fc3316-cd5b-4fe9-9d4a-9eb2c3d28250%2Fjk1yegb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:a) Suppose a firm considers engaging in predatory pricing and knows the following informa-
tion. The firm has a discount rate, r = .1. If they engage in predatory pricing, there will
be 3 periods of losses of $30, 000 per period. However, once they are a monopoly they
can have 6 periods of profit of $25, 000 per period. Based on this information, will the
firm engage in predatory pricing?
b) Now suppose firms become less patient, and the discount rate isr = .5. Will the firm
still
engage
in predatory pricing?
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