A monopolist earns $30 million annually and will maintain that level
Question # 00323726
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Updated on: 06/24/2016 08:50 PM Due on: 07/24/2016
Exam II, part IIA monopolist earns $30 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $30 million in the current period and $14 million annually thereafter. The opportunity cost of funds is 17 percent, and profits in each period are realized at the beginning of each period.
a. What is the present value of the monopolist’s current and future earnings if entry occurs?
Instruction: Round your answer to the nearest two decimal places.
$ million
b. If the monopolist can earn $16 million indefinitely by limit pricing, should it do so?
(Click to select)NoYes
a. What is the present value of the monopolist’s current and future earnings if entry occurs?
Instruction: Round your answer to the nearest two decimal places.
$ million
b. If the monopolist can earn $16 million indefinitely by limit pricing, should it do so?
(Click to select)NoYes
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Solution: A monopolist earns $30 million annually and will maintain that level