In a successful manner, an incumbent links the "Pre-Entry" price and "Post-Entry" profit to prevent entry. The incumbent's monopoly profit is $10 Mil. If a rival successfully enters the market, the incumbent's profits will fall to $4 Mil. If the incumbent lowers output to 25,000 units, its rival will stay out of the market resulting in an infinite stream of profits of $8 Mil. annually. The current interest rate is a tremendous 210 percent. Would limit pricing be considered profitable for the incumbent?
I) No since $4Mil < $4.2Mil.
II) No, since $1.91Mil. < $2Mil.
III) Yes, since $8 Mil. > $4 Mil.
IV) Yes, since $19.05 Mil. > $2 Mil.
V) Linking the "Pre-Entry" price to the "Post-Entry" profit is adequate to guarantee the profitability of "Limit Pricing"