If a monopolist faces entry by a potential rival, investing to lower its marginal cost
A)is a credible way to deter entry.
B)is not a credible threat.
C)is credible but will not deter entry.
D)will not occur, even when there are no barriers to entry.

Question

Quizplus · Accepted Answer

By investing to lower its marginal cost, the monopolist can make it difficult for the potential rival to survive in the market by offering lower prices or gaining a larger market share. This strategy is credible because the monopolist would be losing profits in the short run by investing, but it would make it harder for a potential rival to enter the market and take away market power in the long run. Therefore, investing to lower marginal cost is a credible way to deter entry.

If a Monopolist Faces Entry by a Potential Rival, Investing