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Suppose Two Firms Produce Close Substitutes Such That Reducing the Price

Question 390

Multiple Choice

Suppose two firms produce close substitutes such that reducing the price of one product reduces the quantity demanded of the other. If those two firms merge


A) they can earn higher profits by continuing to sell both products if the profit gained from increased sales of one product are greater than the lost profits from reduced sales of the other product.
B) they will eliminate the less profitable product and sell only one.
C) they will raise prices on both products.
D) they will be unable to earn higher profits because the two products will compete against each other.

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