The fear of unwanted price wars may explain why many firms are reluctant to
A)reduce wages when a decline in aggregate demand occurs.
B)reduce prices when a decline in aggregate demand occurs.
C)expand production capacity when an increase in aggregate demand occurs.
D)provide wage increases when labor productivity rises.

Question

Quizplus · Accepted Answer

Firms may be reluctant to reduce prices during a decline in aggregate demand due to the fear of triggering a price war, where competitors also lower their prices, leading to reduced profit margins for all.

The Fear of Unwanted Price Wars May Explain Why Many