Larry and Susan work in an office near Tractor-ama and Tip Top Tractors, wholesale tractor sellers on the same block. Larry notices that both places are charging only $1500 for a base-model tractor, which is below the price of $2000 that a base-model tractor typically costs elsewhere in the city.
Susan wonders if Tractor-ama and Tip Top Tractors are engaged in a price war. Over the past month, she has noticed that each store has lowered its prices each week, but that Tip Top Tractors always lowered its price first. She suggests that Tip Top Tractors is engaging in predatory pricing.
Larry correctly replies that they cannot determine whether Tip Top Tractors is guilty of predatory pricing because
Choose one:
A. to prove that Tip Top Tractors engaged in predatory pricing, you would need to prove that the owner of Tip Top Tractors threatened the owner of Tractor-ama to keep him from matching the price cut.
B. to prove Tip Top Tractors engaged in predatory pricing, you would need to prove that Tip Top Tractors priced a tractor below average variable cost with the specific intention of driving Tractor-ama out of business.
C. to prove that Tip Top Tractors engaged in predatory pricing, you would need to prove that the average variable cost of a base-model tractor is $1500 or less.