Question

Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $68 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $11 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1.6 billion. Ignoring antitrust concerns, answer the following question: If Smyth Industries engages in predatory pricing by slashing its price 50 percent below marginal cost, the present value (add all zeros and if negative input negative sign) of current and future profits is (when the interest rate was 9%):

Answer 1

Smyth Industries operated as a monopolist for the past a couple of years, earning annual earnings amounting to $sixty eight million, which it could have maintained if Jones integrated did not enter the market. The outcomes of this expanded competition is shrink prices and slash earnings; Smyth Industries now earns $11 million annually. The managers of Smyth Industries are looking to devise a plan to power Jones incorporated out of the market so Smyth can regain its monopoly role (and revenue). One of Smyth's managers suggests pricing its product 50 percentage beneath marginal fee for precisely one yr. The estimated influence of such a transfer is a loss of $1.6 billion. Ignoring antitrust concerns, reply the following query: If Smyth Industries engages in predatory pricing by way of slashing its price 50 percentage below marginal fee, the reward price (add all zeros and if poor enter negative sign) of current and future earnings is (when the curiosity expense was once 9%):

$1.05 billion; $210 million.