Use the following to answer question:
-(Table: Demand for Solar Water Heaters)Use 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 question: 
-(Table: Demand for Solar Water Heaters)Use 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

Since the marginal cost is zero and there are only two firms in the market, a price war would lead to both firms undercutting each other's prices until the price reaches zero. Therefore, the equilibrium price in the market would be $0.

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