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In a Perfectly Competitive Market, Long-Run Average Cost and Long-Run

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Essay

In a perfectly competitive market, long-run average cost and long-run marginal cost are constant and equal: LAC = LMC = $8 for a typical firm. However, one of the firms discovers a technological innovation lowering its average cost and marginal cost to $7. How will this affect the equilibrium price? If all firms can take advantage of the innovation, what is the impact on the market price and industry profits?


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