Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It allows the firm to increase output while keeping prices stable.
B
It forces the firm to lower prices below marginal cost.
C
It leads to a decrease in overall market demand for the product.
D
It has no impact on the firm’s production decisions.
Understanding the Answer
Let's break down why this is correct
Answer
When a technological advancement reduces marginal costs for a firm in a perfectly competitive market, it means that the firm can produce each additional unit of a product at a lower cost. This encourages the firm to increase its production because it can sell more items at a competitive price while still making a profit. For example, if a bakery uses a new oven that bakes bread faster and cheaper, it can produce more loaves without raising prices. As a result, the bakery might attract more customers, increase its sales, and earn more money. Overall, lower marginal costs allow firms to be more efficient and competitive, which can lead to greater market share and higher profits.
Detailed Explanation
When a firm can produce goods at a lower cost, it can make more products without raising prices. Other options are incorrect because Some might think lowering costs means prices must drop below production costs; It's a common mistake to think lower costs reduce demand.
Key Concepts
Technological advancements
Marginal costs
Perfect competition
Topic
Cost Changes and Production Levels
Difficulty
easy level question
Cognitive Level
understand
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