Suppose Ford, GM, and Chrysler produce all the pick-up trucks in the United States. If they all are priced at $30,000 and Ford introduces a $5,000 rebate, what can Ford expect to see?
A) GM and Chrysler go out of business
B) an immediate rebate or price-cut response by GM and Chrysler
C) a long-run shift of industry profit from GM and Chrysler to Ford
D) an unprecedented increase in Ford truck sales in the long-run
E) an increase in GM and Chrysler production to compensate for loss of profit

Question

Quizplus · Accepted Answer

Ford introducing a $5,000 rebate would make its trucks more attractive to consumers compared to those of GM and Chrysler, assuming the trucks are viewed as relatively similar in quality and features. To remain competitive and not lose market share, GM and Chrysler would likely respond with similar rebates or price cuts.

Suppose Ford, GM, and Chrysler Produce All the Pick-Up Trucks