True
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Here's why:
Decreased Market Demand: When demand for a good or service falls, the market price tends to decrease as well. This is because firms are supplying more than consumers are willing to buy at the original price.
Short-Run Adjustment: In the short run, firms may not be able to completely adjust their production levels to meet the lower demand. This is because some costs, like rent or leases on equipment, are fixed in the short term and cannot be reduced immediately.
Price and Marginal Revenue: Since firms in a perfectly competitive market are price takers, they have to accept the market price set by supply and demand. Their marginal revenue (the additional revenue earned from selling one more unit) will also be equal to the market price.
Losses: If the market price falls below the average total cost of production (which includes both variable and fixed costs), firms will incur losses on each unit they sell.
However, it's important to consider the long run as well. In the long run, firms that are making losses will likely exit the market, which reduces overall supply. This can eventually lead to a price increase that brings the remaining firms back to a point where they are at least covering their average total costs.
