Question

Suppose there are monopoly profits in the production of​ airplanes, but two countries are each determined to capture the industry. When one country subsidizes its domestic​ firm, the other country matches the tactic. As a​ result, both firms stay in business. Who gains and who loses?

Answer 1

The both firms lose and the consumers gain

Step-by-step explanation:

This scenario paints the picture of a Price war.

A price war is a competition strategy known by repeatedly cutting prices below those of competitors.

As a competitor lowers its price, then others will lower their prices to match.

Eventually, price wars are beneficial to the buyers who are consumers, who can take advantage of lower prices.

Price cutting is not good for any of the competing companies involved because the lower prices reduce profit margins and can threaten their survival.

If this practice of price reduction continues the monopoly profits are erased, and the smaller, more marginal or less efficient firms cannot compete and must close.