Question

Firms in a perfectly competitive market are said to be "price takers"—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent? Group of answer choicesa. Yes, you would raise the price slightly.b. Yes, you would raise the price enough to meet your target pricing. c.No, you would not raise the price.

Answer 1

Answer:

c. No, you would not raise the price

Explanation:

A perfectly competitive market form is the one which is characterized by following features:

1. Large number of buyers and sellers: The number of buyers and sellers is so large that output by an individual seller forms insignificant portion of the industry output, and thus an individual firm cannot exert perceptible influence on the prices or output.
2. Homogeneous Products: Firms in such a market produce same and exactly similar products in terms of color, size, weight, etc.
3. Freedom of entry and exit: There exist no entry barriers while loss making firms can leave the industry as well.
4. Price taker: Price in such a market form is determined by interaction of market forces of demand and supply and each firm accepts such price. Thus firms are price takers.

In the given case, since all seller firms are producing exactly same products, if one raises the price, the buyers will switch to products of other sellers, providing same product at a lower price. Thus, all sales would be lost in such a scenario.

So, one cannot raise price even by a cent in a perfectly competitive market form.