1. Suppose that, prior to other firms entering the market, the maker of a new smart-phone (Way Cool, Inc.) earns $100 million per year. By reducing its price by 50 percent, Way Cool could discourage entry into “its” market, but doing so would cause its profits to sink to – $5 million. By pricing such that other firms would be able to enter the market, Way Cool’s profits would drop to $75 million for the indefinite future. In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain.
2. You are the manager of an international firm headquartered in Antarctica. You are contemplating a business tactic that will permit your firm to raise prices and increase profits in the long run by eliminating one of your competitors. Do you think it would make economic sense to expend resources on legal counsel before implementing your strategy? Explain.