Question

Which of the following statements about price wars is true? Multiple Choice a. Firms that have to deal with the possibility of price wars often have sticky prices. b. Price wars tend to increase the short-run flexibility of prices. c. Firms that have to deal with the possibility of price wars often have extremely flexible prices. d. Firms that do not have to deal with the possibility of price wars often have sticky prices.

Answer 1

Answer:

The statement which is true about price war is A) firms that have to deal with the possibility of price often have sticky prices.

Explanation:

A price war can be defined as a situation where two or more firms compete with each other over the prices of goods and service by reducing their prices to earn profit or gain or maintain market share.

Sticky prices also called as price stickiness , it is a situation where prices of goods and services doesn't change quickly when there are shifts in demand and supply curve.

Statement A is true because firms that are engaged in wars have sticky prices because they don't want to change their prices more often or too low such that they start losing market share or incurring losses.