Assume that the resource market is purely competitive. If the price of the resource falls, other factors constant, then a firm that sells its product in a purely competitive market will
A)increase production by a larger amount than a firm with some monopoly power in its product market.
B)increase production by a smaller amount than a firm with some monopoly power in its product market.
C)decrease production by a larger amount than a firm with some monopoly power in its product market.
D)decrease production by a smaller amount than a firm with some monopoly power in its product market.

Question

Quizplus · Accepted Answer

In a purely competitive market, when the cost of resources falls, firms can produce more at a lower cost, leading to an increase in production. Firms in purely competitive markets are price takers with minimal control over prices and will increase production significantly to take advantage of lower costs. In contrast, firms with monopoly power have more control over their prices and may not increase production as much, since they can already influence prices to manage profitability.

Assume That the Resource Market Is Purely Competitive