Assume that in an effort to discourage competitors,firm X has lowered its price below its average total costs of production.This is an illustration of the limit pricing form of strategic entry deterrence.

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The scenario described is an example of predatory pricing, not limit pricing. Limit pricing is when a firm sets a low enough price to discourage entry but still above their average total cost of production. Predatory pricing is when a firm sets a very low price to drive competitors out of business and eventually raise prices back up once they have eliminated the competition.

Assume That in an Effort to Discourage Competitors,firm X Has