Question $3,(9$ marks$)$

Pikachu Corp currently competes in a duopoly. The market price is $$110,$ and Pikachu's annual

profit is $$125$ mil. If Pikachu were the only firm in the market, Pikachu could charge the monopoly

price of $$280$ per unit and earn $$155$mil annually for the indefinite future. By charging $$50$ per

unit for one year, Pikachu could drive her rival out of the market and maintain a monopoly position

indefinitely, but this strategy will result in a $$405$ mil loss since the marginal cost is $$75$ per unit.

$($a$)$ Name the pricing strategy that the Pikachu's manager is considering. Describe the main

feature of this strategy. What is the condition for this strategy to be successful?

$($b$)$ Assume the interest rate is $6$ percent, should this pricing strategy to be adopted? Explain.