Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm can increase its output without raising its prices.
B
The firm's average total costs will also decrease significantly regardless of the marginal cost changes.
C
The firm may gain a competitive advantage over rivals who do not adopt the technology.
D
The firm's price remains unchanged due to the perfectly competitive nature of the market.
E
The firm will always reduce its variable costs when it adopts new technology.
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 the firm can produce its goods at a lower cost for each additional unit made. This decrease in cost allows the firm to either lower its prices or increase its production level. Lower prices can attract more customers, leading to higher sales, while increased production can help the firm take advantage of economies of scale. For example, if a bakery invests in a new oven that bakes bread faster and cheaper, it can sell more bread at a lower price, benefiting both the firm and consumers. Overall, this advancement can lead to increased competition in the market, benefiting consumers through lower prices and more choices.
Detailed Explanation
In a perfectly competitive market, all firms face the same prices. Other options are incorrect because Some might think that lowering costs lets a firm produce more without changing prices; It's a common belief that if marginal costs drop, average total costs will also drop.
Key Concepts
Marginal cost reduction
Perfectly competitive market
Variable costs
Topic
Cost Changes and Production Levels
Difficulty
medium level question
Cognitive Level
understand
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