Larry and Susan work in an office near 2 Live Stew and Stew-topia, specialty stew restaurants on the same block. Larry notices that both places are charging only $2.00 for a bowl of stew, which is below the price of $4.00 that a bowl of stew typically costs elsewhere in the city.

Question

21-04-2020
Business

contestada

Larry and Susan work in an office near 2 Live Stew and Stew-topia, specialty stew restaurants on the same block. Larry notices that both places are charging only $2.00 for a bowl of stew, which is below the price of $4.00 that a bowl of stew typically costs elsewhere in the city.

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Parrain Parrain · Answer 1 · 2020-04-23T10:19:22+02:00

Answer: B. to prove Stew-topia engaged in predatory pricing, you would need to prove that Stewtopia priced stew below average variable cost with the specific intention of driving 2 Live Stew out of business

Explanation:

Predatory pricing is the pricing of goods in such a way that it is so low that it is even below average variable cost. The logic being that in the Shortrun, if a firm cannot cover it's variable cost, it would have to shutdown.

Larry would therefore be correct in saying that to prove Stew-topia engaged in predatory pricing, it would need to proven that Stewtopia priced stew below average variable cost with the specific intention of driving 2 Live Stew out of business.