Suppose that, prior to other firms entering the market, the maker of a newsmartphone (Way Cool, Inc.) earns $100 million per year. By reducing itsprice by 50 percent, Way Cool could discourage entry into “its” market, butdoing so would cause its profits to sink to
$5 million. By pricing such thatother firms would be able to enter the market, Way Cool’s profits would dropto $75 million for the indefinite future. In light of these estimates, do youthink it is profitable for Way Cool to engage in limit pricing? Is any additionalinformation needed to formulate an answer to this question? Explain.During the early days of the Internet, most dot-coms were driven by revenuesrather than profits. A large number were even driven by “hits” to their site ratherthan revenues. This all changed in early 2000, however, when the prices of unprof-itable dot-com stocks plummeted on Wall Street. Most analysts have attributedthis to a return to rationality, with investors focusing once again on fundamentalslike earnings growth. Does this mean that, during the 1990s, dot-coms thatfocused on “hits” rather than revenues or profits had bad business plans? Explain.