Assume that there are two types of perfectly competitive firms whose cost of production differ.An increase in input prices will lead to an exodus of high cost firms before low cost ones.

Question

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In a perfectly competitive market, firms with higher costs of production will have lower profit margins and thus, a decrease in input prices will have a greater impact on their profitability. As a result, they will be more likely to exit the market compared to firms with lower costs of production. Therefore, an increase in input prices will also lead to an exodus of high-cost firms before low-cost ones.

Assume That There Are Two Types of Perfectly Competitive Firms