microeconomics

prateekbande
Posts: 4
Joined: Wed Aug 29, 2012 8:06 pm

microeconomics

Postby prateekbande » Wed Aug 29, 2012 8:52 pm

In the long-run, after all firms in a perfectly competitive industry have adopted new technology, the:

A) price will equal minimum average total cost.
B) individual firm supply will increase as demand decreases.
C) price will be set where average variable cost is equal to marginal revenue.

the ans was a... but i was unable to understand why?

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akshat
Good Student
Posts: 10
Joined: Wed Aug 22, 2012 11:53 am

Re: microeconomics

Postby akshat » Fri Aug 31, 2012 11:32 am

This is because the firms in perfect competition are price takers. They offer the same products in the market and there is no differentiation. So, if one seller undercuts the other, then others will have to respond by reducing their price and this will happen till you reach the minimum total average cost of production beyond which each will make loss by letting the price go down further so the price will stabilize there, nobody would be able to sell at a higher price and nobody would liek to bear a loss by selling at a lower price.


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