Question

Assume there is a perfectly competitive market for tangerines. What will happen in the long run for the market to achieve both allocative and productive efficiency if the price for tangerines is lower than the marginal cost of producing tangerines?

Answer 1

Answer: Producers will either exit the market or produce less tangerines

Step-by-step explanation:

If the marginal cost of producing tangerines is more than the price of producing them, it means that the supply of tangerines is quite high which is why the market reduced the price of tangerines.

The producers in the market will therefore act to reduce supply. They will do this by either reducing the number of producers so that the smaller number of producers will produce less or they will reduce production jointly in order to reduce supply. As this is a perfectly competitive market, the former scenario is more likely.