-In Exhibit L-5, the most reasonable explanation for what happens to profit when both airlines choose a low price is that
A) average costs are lower
B) fewer people use airlines as a means of transportation
C) the firms are colluding
D) combined industry profit will be the lower than it would be under any other price combination
E) Southwest grabs a bigger share of the market

Question

-In Exhibit L-5, the most reasonable explanation for what happens to profit when both airlines choose a low price is that
A) average costs are lower 
B) fewer people use airlines as a means of transportation 
C) the firms are colluding 
D) combined industry profit will be the lower than it would be under any other price combination 
E) Southwest grabs a bigger share of the market

Quizplus · Accepted Answer

When both airlines choose a low price, it typically leads to a price war, which reduces the profit margins for both companies. This scenario often results in a lower combined industry profit than if the firms had maintained higher prices, either through collusion or independent decision-making aimed at maximizing profits.

-In Exhibit L-5, the Most Reasonable Explanation for What Happens