Baker Enterprises operates a midsized company that specializes in the production of a unique type of memory chip. It is currently the only firm in the market, and it earns $10 million per year by charging a higher price of $115 per chip. Baker is concerned that a new firm might soon attempt to clone its product. If successful, this would reduce Bakers profit to $4 million per year. Estimates indicate that, if Baker lowers its price to $90 per chip, the entrant will stay out of the market and Baker will earn profits of $5 million per year for the indefinite future.

a. Does it make sense for Baker to limit price if the interest rate is 10 percent?

b. What is the lowest amount of profit Baker would need when limit pricing to make this strategy profitable?