Assume a firm is a monopoly and enjoys $10,000,000 profits per year.The firm lobbies to have a moratorium passed by Congress on new firms in its market for the next 25 years.If there is no discount rate,how much would the firm be willing to pay to deter entry?
A) $250 million
B) $25 million
C) $100 million
D) $250 billion

Question

Quizplus · Accepted Answer

The firm's profits per year are $10,000,000 and the moratorium would prevent competition for 25 years, resulting in a total profit of $250,000,000. Therefore, the firm would be willing to pay up to the same amount to deter entry and maintain its monopoly position.

Assume a Firm Is a Monopoly and Enjoys $10,000,000 Profits