Limit pricing refers to
A)the highest price a monopolist can set.
B)the highest price that just inflicts a loss on a potential entrant.
C)a strategy used by entering firms in contestable markets.
D)the lowest price a duopoly can set.
E)the price set in a perfectly competitive market.

Question

Quizplus · Accepted Answer

Limit pricing is a strategy used by an incumbent monopolist to deter entry by setting a price low enough to make it unprofitable for a potential entrant to enter the market. The limit price is typically set just high enough to cover the incumbent's cost of production so that if a potential entrant were to enter the market and match the price, the incumbent would still be able to make a profit, but the entrant would not. As a result, the potential entrant would not enter the market, and the monopolist would continue to enjoy its monopoly profits.

Limit Pricing Refers to