The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is:
A)unrealistic because each firm is unique.
B)realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others.
C)unrealistic because firms closely guard the details of their production processes.
D)realistic because firms rarely seek out cost-saving innovations.

Question

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.  A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is:
A)unrealistic because each firm is unique. 
B)realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others. 
C)unrealistic because firms closely guard the details of their production processes. 
D)realistic because firms rarely seek out cost-saving innovations.

Quizplus · Accepted Answer

In a perfectly competitive market, a cost-saving innovation adopted by one firm will be quickly adopted by rival firms.

The Figure Below Depicts the Short-Run Market Equilibrium in a Perfectly