A monopolist earns $60 million annually and will maintain that level of profit indefinitely provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $60 million the first period but fall to $40 million annually thereafter. The opportunity cost of funds is 10 percent, and profits in each period are realized at the beginning of each period. What is the present value of the firm's current and future earnings if the entry occurs? Multiple Choice $460 million $750 million $450 million $550 million

A monopolist earns $60 million annually and will maintain that level of profit indefinitely provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $60 million the first period but fall to $40 million annually thereafter. The opportunity cost of funds is 10 percent, and profits in each period are realized at the beginning of each period. What is the present value of the firm's current and future earnings if the entry occurs? Multiple Choice $460 million $750 million $450 million $550 million

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.2P

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