Final answer:
The goal of limit pricing is to deter entry of new competitors by setting prices low enough to discourage competition but sustainable for long-term profit maximization. It differs from short-term profit goals or cooperation strategies among duopolists, instead focusing on securing market share and long-run profitability. (option a)
Step-by-step explanation:
The goal of limit pricing is to deter the entry of new competitors into a market. This strategy is often associated with firms that have a significant cost advantage or economies of scale, which allows them to set prices low enough to make it unattractive for potential entrants to compete, yet still high enough to be sustainable in the long term. This strategy aims to maintain a firm's market share and maximize long-run profits rather than focusing on short-run profits, welfare maximization, or fostering cooperation among duopolists.
When looking at how a monopolist sets prices, after determining the profit-maximizing quantity of output where marginal revenue (MR) equals marginal cost (MC), it will then charge the price consumers are willing to pay for that quantity as indicated by the demand curve. This is how a monopolist maximizes profits rather than matching the price to marginal cost as perfectly competitive firms do, which ensures allocative efficiency.