Suppose three firms lace the same total market demand for their product. This demand is:
P Q
$80 .......... 20.0(H)
70 ............ 25,000
60 ............ 30.000
50 ............ 35.000
Suppose further that all three firms are selling their product for $60 and each has about one-third of the total market. One of the firms, in an attempt to gain market share al the expense of the others, drops its price to $50. The other two quickly follow suit.
a. What impact would this move have on die profits of all three firms? Explain your reasoning.
b. Would these firms have been better off in terms of profit if they all had raised the price to $70? Explain.