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-(Table: Demand for Solar Water Heaters) Look at the table Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be:
A) $0.
B) $700.
C) $800.
D) $1,000.

Question

Use the following to answer questions: 
-(Table: Demand for Solar Water Heaters) Look at the table Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be:
A) $0. 
B) $700. 
C) $800. 
D) $1,000.

Quizplus · Accepted Answer

In a price war with zero marginal cost, firms will continue to lower prices to capture market share until the price reaches the marginal cost, which is $0.

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