Question 22
Market StructuresIf prices fall in a perfectly competitive industry, the firms in that industry in the short run will
- A.not decrease in number
- B.keep output at the same level but make losses
- C.reduce production
- D.intensify the advertisement of their products.
Show the answer and explanation
Answer: C (reduce production)
Explanation
Each firm produces where price equals marginal cost; a lower price means a lower output, so firms cut production.