Which of the following would occur if a single farm in perfect competition lowered its price below the long-run equilibrium market price?
A)All other farms would lower their prices, too.
B)It would not be maximizing profit.
C)It would get a larger share of the market, and this would be profitable for it.
D)Other farms would be driven out of the industry.
E)Other farms would enter the industry.

Question

Quizplus · Accepted Answer

If a single farm in perfect competition lowers its price below the long-run equilibrium market price, it would not be maximizing profit because it would be selling its output at a lower price than its cost. The other farms in the market would continue to sell at the long-run equilibrium market price because they would not want to lose profit. If the single farm continues to sell at a lower price, it will eventually be driven out of the industry.

Which of the Following Would Occur If a Single Farm