Help Seve& Smyth Indsnes operated as amongeistfor the past several years earing
ID: 1128922 • Letter: H
Question
Help Seve& Smyth Indsnes operated as amongeistfor the past several years earing anual prdts muting to SSO"Ma, whih't cold harand , ern leop meddene-renaat The do ncreased competition is lower prices and lower profits, Smyth lndustries now eains $10 million annualy The managers of Smyth Industies ane trying to devise a plan to drive Jones incorporated out of the market so Smyth can sepin s monopoly posution land profig One of Smyth's managers suggests pricing its product 50 percent below manginal cost for exactly one year The estmated impact of such a move is a loss of St biion Ignon antrust concerms,s in Smyth Industries nterest to remain as a duoplist or engage in predatory pricing wear Mutiple ChoiceExplanation / Answer
Answer:- Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, is it in Smyth Industries' interest to remain as a duopolist or engage in predatory pricing?
Correct Answer:- B. Remain as a duopolist since $210 million is greater than $0
Reason:- greater profits can be earned by remaining as a duopolist
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