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Suppose a firm faces a new entrant in one of the two markets that it operates in. If the firm pursues an aggressive pricing strategy
Suppose a firm faces a new entrant in one of the two markets that it operates in. If the firm pursues an aggressive pricing strategy following the rival firm's entrance, it will earn a loss of $10 million in that market, but this will deter entry of rival firms into the other market and earn the incumbent firm $70 million in that market over the next ten years. If the incumbent firm does not pursue an aggressive pricing strategy, then they will earn a combined $40 million between the two markets over the next ten years. If this firm uses an internal discount rate of 8%, what outcome do you expect? O a. The firm will not pursue the aggressive pricing strategy because the present value of future profits in one market does not outweigh the loss in the other market. b. The firm will pursue the aggressive pricing strategy because the present value of future profits in one market outweighs the loss in the other market. 0 c. The firm will not pursue the aggressive pricing strategy because the present value of future
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