Limit pricing in a contestable market sets the price at the highest level that .
A) maximises the profit of the existing firm
B) inflicts a loss on an entrant
C) maximises the profit of an entrant
D) maximises the profit of both the existing firm and the entering firm

Question

Quizplus · Accepted Answer

Limit pricing is used by existing firms to set prices low enough to deter entry by making it unprofitable for potential entrants.

Limit Pricing in a Contestable Market Sets the Price at the Highest