Multiple Choice
In the context of competitive markets, what does competition among economic units primarily lead to?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a competitive market, if Lynch Company manufactures and sells a single product, which of the following best describes the price at which Lynch Company can sell its product?
A
Lynch Company can negotiate prices individually with each customer.
B
Lynch Company must accept the market price determined by supply and demand.
C
Lynch Company can set any price it wants without regard to competitors.
D
Lynch Company can influence the market price by changing its own output.
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many sellers, identical products, and free entry and exit.
Recognize that in such a market, individual firms are price takers, meaning they cannot influence the market price by their own actions.
Recall that the market price is determined by the overall supply and demand in the market, not by any single firm.
Conclude that Lynch Company must accept the market price as given and cannot negotiate or set prices independently.
Therefore, the best description is that Lynch Company must accept the market price determined by supply and demand.
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