-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.Assuming a fixed cost of entry,the incumbent will deter entry because
A) it is more profitable than accommodating entry.
B) it increases consumer surplus.
C) the potential entrant winds up with zero profit.
D) the incumbent would earn zero profit if it accommodated entry.

Question

-The above figure shows the payoff matrix facing an incumbent firm and a potential entrant.Assuming a fixed cost of entry,the incumbent will deter entry because
A) it is more profitable than accommodating entry. 
B) it increases consumer surplus. 
C) the potential entrant winds up with zero profit. 
D) the incumbent would earn zero profit if it accommodated entry.

Quizplus · Accepted Answer

The incumbent firm will deter entry if doing so is more profitable than allowing the entrant into the market. This strategy often involves the incumbent accepting lower profits in the short term to maintain higher long-term profits by keeping the market to themselves, rather than sharing it with new entrants.

-The Above Figure Shows the Payoff Matrix Facing an Incumbent