Question

which of the following is false.

a) an individual firm in a perfectly competitive market cannot affect the price it receives for its output by changing the level of its output.

b) in a perfectly competitive market, the price is determined by the combined output decisions of all firms in a market.

c) a perfectly competitive firm has a downwards sloping marginal revenue curve

d) for a perfectly competitive firm, the optimal quantity is determined by the following relationship MR=MC=P

Answer 1

In a perfectly competitive market all the firms are price takers. No individual firm has the market power to influence the market price of the product. The number of firms in the industry is large so the there is no impact of an individual firm on the price and quantity of the product. Option A is correct.

The price of the industry is determined by the market forces that is demand and supply forces. Therefore, B is correct.

Since the firms are price takers therefore, they cannot change the market price so there. Demand curve is represented by a straight line which is parallel to the horizontal axis. The marginal revenue curve is same as price curve approve remains constant for all level of output. C is incorrect.

in case of profit maximization the profit is maximized by equating first derivative of profit to zero

Differentiating above equation wrt Q we get

Now equating it to zero we get

P - MC = 0

P = MC

In perfect competition MR = P

Therefore, MR = MC = P

Option C is incorrect.

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