Refer to Scenario 13.17. If the Incumbent Monopoly installed excess capacity in advance of the Potential Entrant's appearance on the scene, and this excess capacity had a cost of $X, it would reduce by $X the Incumbent Monopoly's payoffs in the:
A) top row.
B) bottom row.
C) left column.
D) right column.
E) entire matrix.

Question

Quizplus · Accepted Answer

The cost of excess capacity would affect all of the incumbent monopoly's payoffs, regardless of the potential entrant's decision to enter or stay out, because the cost is sunk and affects the monopoly's profits in every possible outcome.