Asked by Brooke Elizabeth on Jul 25, 2024
Verified
Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?
Market Price
The current price at which an asset or service can be bought or sold in a particular market.
Perfectly Competitive Market
A market structure characterized by a large number of buyers and sellers, free entry and exit, and a homogeneous product.
Price Setting
The determination of the selling price of goods or services, typically factoring in costs, demand, and competitive prices.
- Describe the role of price takers in a competitive market.
Verified Answer
ZK
Zaeem KadiwalaJul 26, 2024
Final Answer :
The firm could not sell any more of its product at a lower price than it could sell at the market price. As a result, it would needlessly forgo revenue if it set a price below the market price. If the firm set a higher price, it would not sell anything at all because a competitive market has many sellers who would supply the product at the market price.
Learning Objectives
- Describe the role of price takers in a competitive market.