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20 September, 10:48

Sanford Inc. currently competes in a duopoly. The market price is $10 and Sanford's annual profit is $10 million. If Sanford were the only firm in the market, it could charge the monopoly price of $25 per unit and earn $35 million annually for an indefinite period of time. By charging $5 per unit for one year, Sanford could drive its rival out of the market and maintain a monopoly position indefinitely. However, this strategy will result in a $20 million loss since its marginal cost is $8 per unit.

a. What pricing strategy is the manager considering?

b. Ignoring legal considerations, is this pricing strategy profitable? Assume the interest rate is 5

percent and, for simplicity, that any current period profits or losses occur immediately (at the

beginning of the year).

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Answers (1)
  1. 20 September, 10:58
    0
    Answer : B

    Explanation: ignoring legal considerations
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