Tuesday, November 29, 2005

Can You Answer This Preliminary Exam Question

In the 60s when Professor Steven Cheung was taking his oral exam on price theory, his teacher asked the following question:

Under perfect competition, the best firms in the market can do is to cover their costs of production. The question is why these firms do not quit producing?

1 comment:

貓爸爸/catpapa said...

Because all cost in economics are opportunity cost, no exception for the cost of production in question. So, there is nothing else better for the firm to do.