If prices fall in a perfectly competitive industry, then the firms in that industry will in the short run:
A)not decrease in number unless price falls below ATC for some firms.
B)try to reduce production or shut down.
C)keep output at the same level but make losses.
D)advertise.
E)both A and B.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms cannot influence the market price and must accept the prevailing market price. If the market price falls below the firm's marginal cost, then the firm will experience losses. In the short run, the firm may choose to reduce production or shut down, but in the long run, firms may exit the market if they continue to operate at a loss. Therefore, option B is the best choice. Option A is partially correct but does not address the issue of losses. Option C is incorrect because firms cannot keep output at the same level if they are making losses. Option D is irrelevant as advertising is not likely to help firms in a price-sensitive market.

If Prices Fall in a Perfectly Competitive Industry, Then the Firms