If firms differ in terms of their technologies, a drop in demand will cause a long run decrease in output price.

Question

Quizplus · Accepted Answer

When the demand for a product decreases, firms with less efficient technologies will find it harder to compete and are likely to decrease their output and lower their prices in the long run. On the other hand, firms with more efficient technologies will be better equipped to handle the drop in demand and may not need to lower their output or prices as much. This leads to a widening price gap between the firms, which can cause the less efficient firms to exit the market in the long run.

If Firms Differ in Terms of Their Technologies, a Drop