Consider an incumbent that is a monopoly currently earning $1 million annually. Given the declining costs of raw materials, the incumbent believes a new firm may enter the market. If successful, a new entrant would reduce the incumbent's profits to $750,000 annually. To keep potential entrants out of the market, the incumbent lowers its price to the point where it is earning $850,000 annually for the indefinite future. If the interest rate is 5 percent, does it make sense for the incumbent to limit price to prevent entry?
a. No, since $2 million > $250,000.
b. Yes, since $2 million > $250,000.
c. No, since $5 million > $100,000.
d. Yes, since $250,000 > $5 million.