An oligopolist decides to lower its price to capture a greater market share. This sets off a price war with its rivals, and the price moves from P 1 to P 2 and so forth. What is the ultimate outcome if this price war continues?
a. The final price equals the ATC, and economic profits become zero.
b. The final price reflects the benefits of collusion between the firms.
c. Without collusion the firms are able to charge a higher price than before.
d. The final price exceeds the ATC, and economic profits are earned.
a. The final price equals the ATC, and economic profits become zero.
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