I am sure you have noticed that several gas stations are often found next to or

Question

I am sure you have noticed that several gas stations are often found next to or very close to each other at highway intersections. They also often have same or similar prices. If one gas station tries to increase its price from the prevailing $2.89 to $3.09, customers will go across the street and the gas station will lose revenues. If the same gas station lowers is price to $2.69, it will attract new customers only until the other also drop their prices. What graph can be used to explain this behavior and why do gas stations behave this way?

Explanation / Answer

Its an example of perfect competetion where products are same and the prices too neither can price increase nor can decrease.The demand curve is horizontal.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.