Under limit pricing,the incumbent will produce:
A) more than the monopoly output and charge a price that is greater than the monopoly price.
B) less than the monopoly output and charge a price that is greater than the monopoly price.
C) more than the monopoly output and charge a price that is less than the monopoly price.
D) less than the monopoly output and charge a price that is less than the monopoly price.

Question

Quizplus · Accepted Answer

Under limit pricing, the incumbent firm produces more than the monopoly output to saturate the market and sets a price lower than the monopoly price to deter entry by potential competitors. This strategy makes it unattractive for new firms to enter the market because they would have to accept lower profits or incur losses.

Under Limit Pricing,the Incumbent Will Produce