Which of the following quotes shows limit pricing in the widget industry?
A)"I am producing extra widgets, even though it costs me short-run profit, to stop Wally's Widgets from expanding into my market."
B)"I am producing more widgets than Wally and I agreed to in our talk last week."
C)"If only Wally and I could agree on a higher price, we could make more profit."
D)"I have been spending extra on research and development of my new two-way widget."
E)none of the above

Question

Quizplus · Accepted Answer

This quote shows limit pricing in the widget industry as the producer is willing to forgo short-run profit in order to deter potential entry by a rival firm, in this case, Wally's Widgets. This strategy is known as limit pricing, where an incumbent firm sets a price low enough to deter entry by a new firm, while still making it unprofitable for the entrant to compete in the market.

Which of the Following Quotes Shows Limit Pricing in the Widget