Asked by Emily Esparza on May 17, 2024
Verified
If the perfectly competitive firm withholds some of its output from the market,
A) in many cases it can drive the market price up.
B) in many cases it can drive the market price down.
C) it will have no effect on market price whatsoever.
D) it is impossible to generalize what the long-run effect will be.
Withholds Output
A strategy where a firm or supplier limits the supply of a product to increase demand or prices.
Perfect Competition
A market structure characterized by a large number of buyers and sellers, homogenous products, and the free entry and exit of firms, leading to price-taking behavior.
Market Price
The price at which a good or service is bought and sold in a marketplace, determined by the forces of supply and demand.
- Elucidate on the nature of the demand curve faced by perfectly competitive entities and its significance.
- Understand the influence of market entry and exit on supply, demand, and pricing dynamics longitudinally.
Verified Answer
GL
Giselle LombardoMay 20, 2024
Final Answer :
C
Explanation :
In a perfectly competitive market, individual firms are price takers and have no influence on the market price due to the large number of firms and the assumption of a homogeneous product. Withholding output by a single firm will not affect the market price.
Learning Objectives
- Elucidate on the nature of the demand curve faced by perfectly competitive entities and its significance.
- Understand the influence of market entry and exit on supply, demand, and pricing dynamics longitudinally.