Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?
What will be an ideal response?
A firm in a contestable market is not protected by barriers to entry. Thus while it is currently the only firm in the market, it might worry that other firms will enter the market. In this case, setting a relatively lower price is known as limit pricing. It is a pricing strategy that deters entry by sending a signal to potential entrants that entering the industry would result in economic losses.
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The individual with the highest valuation of the good will win in which of the following auctions?
A) English Auction B) Dutch Auction C) Sealed Bid Auction D) All of the above.
During the short-run period of the production process, a firm will be
a. unable to vary any of its factors of production. b. able to vary only some of its factors of production. c. able to vary all of its factors of production. d. able to vary the size of its plant.