Doubt.. DSE 2010 ..Plz help

[ashutosh]

Q 38 . DSE 2010. Please explain

[Dreyfus]

Firm 1 won't produce at price below its cost ie 2.5..so option a cannot be equilibriu!m
Now when p1=p2=3 firm 2 has incentive to capture firm 1s share by reducing price below 3 but greater than 1.5
So there can be two possibility with firm 2 ie either to capture firm1's share by lowering its price or simply share the market share with firm 1....so at p1=3 firm 1 is willing to sell and at p2=3 firm 2 will share market with firm 2 or decrease its price to 2 to capture entire market...

[ashutosh]

so the answer will be d. and not c. right ?

[Dreyfus]

Yes d...