Firms A and B are within an oligopolistic market. Firm A lowers the price for on
ID: 1124236 • Letter: F
Question
Firms A and B are within an oligopolistic market. Firm A lowers the price for one of their goods and in retaliation, Firm B decides to set a policy that will keep the price for one of its goods lower than Firm A's. Based on the given information, which statement is true?
Firm B has higher variable costs.
Firm A will have higher labor costs.
Firm B is engaging in a grim trigger response.
Firm B is engaging in a trembling hand trigger response.
Firms A and B are within an oligopolistic market. Firm A lowers the price for one of their goods and in retaliation, Firm B decides to set a policy that will keep the price for one of its goods lower than Firm A's. Based on the given information, which statement is true?
Firm B has higher variable costs.
Firm A will have higher labor costs.
Firm B is engaging in a grim trigger response.
Firm B is engaging in a trembling hand trigger response.
Explanation / Answer
Answer.) Firm B is engaging in a grim trigger response.
Grim trigger strategy is to lower price to marginal cost indefinitely in response to rival's price cutting in one period.
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