A monopolist earns $80 million annually and will maintain that level of profit indefinitely, provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $80 million the first period, but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. If the monopolist can earn $45 million indefinitely by limit pricing, should it do so?
A. No, it will earn $270 million in present value if it does this.
B. No, it will earn $225 million in present value if it does this.
C. Yes, it will earn $270 million in present value if it does this.
D. Yes, it will earn $225 million in present value if it does this.
Answer: C
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Answer the following statement true (T) or false (F)