Use the following scenario to answer the following questions:
In 2011,three firms were selling cellular phone service for a price of $40 per month in Pittsburgh,Pennsylvania.Each firm serviced 100 cell phone customers; thus,all firms together serviced a total of 300 customers.In 2012,five firms were selling cellular phone service for a price of $30 per month.Each firm serviced 70 cell phone customers; thus,all firms together serviced a total of 350 customers.Assume marginal cost is $0 (zero)for all firms and thus total revenue is equal to total profit.
-Which effect best describes the likely decrease in profits experienced by each of the three original firms due only to the lower market price?
A) competitive
B) price
C) output
D) market
E) oligopoly

Question

Quizplus · Accepted Answer

The decrease in profits is primarily due to the lower market price, which is a result of price competition among the five firms. This suggests that the price effect is the most relevant factor in explaining the decrease in profits.

Use the Following Scenario to Answer the Following Questions