Question

As price competition in an industry increases, what happens to prices and profitability?

1) Prices go up and profitability increases
2) Prices go down and profitability decreases
3) Prices go up and profitability decreases
4) Prices go down and profitability increases

Answer 1

As price competition in an industry increases, prices go down and profitability decreases.

Step-by-step explanation:

As price competition in an industry increases, prices go down and profitability decreases. When firms engage in price competition, they lower their prices to attract customers. This leads to lower profitability as firms have to reduce their profit margin to compete with other firms.