Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest
rate is 5 percent.
A. $210 million
B. $1.05 billion
C. $200 million
D. $100 million
Answer: A
You might also like to view...
Distinguish among public goods, private goods, common resources, and natural monopoly goods
What will be an ideal response?
Currently challenging Treasury bills as the centerpiece of the money market is (are)
A) federal funds. B) Eurodollars. C) commercial paper. D) negotiable CDs.
Workers who suffer disability are likely to suffer higher ________
A) cyclical unemployment B) tertiary unemployment C) structural unemployment D) natural unemployment
The monopoly that does not practice price discrimination
a. is a firm with a marginal revenue curve with a slope of zero b. is a price taker c. charges the same price for every unit of output it sells d. operates in a market where all firms charge the same price e. is always profitable in the short run