Assume a firm is a monopoly and enjoys $10 million in profits per year. The firm lobbies to have a moratorium passed by Congress on new firms in its market for the next 25 years. If there is no discount rate, how much would the firm be willing to pay to deter entry?
A)$250 million
B)$25 million
C)$100 million
D)$250 billion

Question

Quizplus · Accepted Answer

If the monopoly firm is able to successfully deter entry for 25 years, it would earn profits of $10 million per year for a total of 25 years which would be $250 million. Therefore, the firm would be willing to pay up to $250 million to deter entry.

Assume a Firm Is a Monopoly and Enjoys $10 Million