La Dila and Swiss Pro are the only two firms in an industry.The firms charge equal prices for their products,which are perfect substitutes.La Dila decides to lower its price slightly.Swiss Pro responds by cutting its price further.This price cutting will continue as long as each firm's ________.

Question

Quizplus · Accepted Answer

This price cutting will continue as long as each firm's price is higher than its marginal cost. This is because, in a competitive market, firms will lower prices to attract more customers as long as they can cover their marginal cost, which is the cost of producing one more unit of a good.

La Dila and Swiss Pro Are the Only Two Firms