A firm charges a price below its average total cost so that it drives out its competition. This is an example of

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Predatory pricing is a strategy where a company sets a low price for its products or services with the intent to drive out its competitors. By charging a price below its average total cost, the firm aims to sustain losses for a short period until its rivals exit the market. Once the competition is eliminated, the firm can increase its prices to monopolistic levels and earn higher profits.

A Firm Charges a Price Below Its Average Total Cost