The simple form of the "theory of limit pricing" postulates that:
A)A firm in a strong market position can obscure superior performance by limiting the release of information about prices
B)A firm always tries to limit price increases to what its customers can afford
C)There is a natural and objective limit to prices, imposed by the market
D)A firm in a strong market position sets prices at a level that dissuades entrants from entering

Question

Quizplus · Accepted Answer

The theory of limit pricing suggests that a dominant firm in a market can discourage potential entrants by setting prices at a level that is unprofitable for new firms to enter. This enables the dominant firm to maintain its market power and earn supernormal profits. Therefore, the answer is D - "A firm in a strong market position sets prices at a level that dissuades entrants from entering."

The Simple Form of the "Theory of Limit Pricing" Postulates