A firm that produces organic fruits has recently implemented a new technology that significantly reduces its variable costs. In a perfectly competitive market, how should the firm adjust its production levels and pricing strategy in response to this cost reduction?

When a firm in a perfectly competitive market reduces its variable costs, it can produce its fruits at a lower expense. This means the firm can either increase its production or lower its prices while maintaining profitability. If the firm chooses to increase production, it can sell more fruits at the market price, which remains the same because it is determined by supply and demand. For example, if the firm used to produce 100 tons of fruit at a cost of $10,000 and now it costs only $8,000, it can produce more for the same total cost or charge a lower price and still make a profit. Overall, the firm should adjust its production upward and consider lowering prices to attract more customers while keeping its profits healthy.