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.
A
You might also like to view...
To an economist, theory can be thought of as
a. abstraction for the sake of argument. b. one person's opinion, which is just as good as another's. c. another term for the description of a situation. d. beliefs which cannot necessarily be verified. e. explanation of mechanisms behind observed phenomena.
The real interest rate:
a. Is always lower than the nominal interest rate. b. Is strongly affected by expected inflation. c. Equals the nominal interest rate plus the expected inflation. d. Is determined by lenders solely. e. Reflects a nation's time value of money.