In a perfectly competitive market: a)firms are price setters. b)firms produce the quantity for which marginal...

In a perfectly competitive market:

a)firms are price setters.

b)firms produce the quantity for which marginal cost equals price.

c)firms can increase profits by charging a price higher than the market price.

d)buyers are price setters.

Solutions

Expert Solution

Option

b)firms produce the quantity for which marginal cost equals price.

A perfectly competitive market has many firms and many buyers mean no one can influence the price in the market and all are price takers from the market equilibrium. So the demand curve for the firm is a horizontal line which is perfectly elastic demand so if the firm increases price above market equilibrium then there is no demand and if decrease then there is infinite demand.

So the firm produces up to MC=P.

Rahul Sunny answered 2 years ago

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