Multiple Choice
Which statement best describes the variety of goods found in a perfectly competitive market?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
A perfectly competitive firm does not try to raise its price above the market price because:
A
raising the price will increase the firm's total revenue
B
buyers can purchase the same product from other firms at the market price
C
the government sets the price in a perfectly competitive market
D
the firm can always sell all its output at any price it chooses
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many firms sell identical products, and each firm is a price taker, meaning it cannot influence the market price.
Recognize that if a firm raises its price above the market price, buyers will switch to other firms offering the same product at the lower market price.
Recall that in perfect competition, the demand curve faced by an individual firm is perfectly elastic at the market price, implying the firm can sell any quantity at that price but none at a higher price.
Conclude that raising the price above the market price will cause the firm to lose all its customers, reducing its total revenue to zero rather than increasing it.
Therefore, the firm does not try to raise its price above the market price because buyers can purchase the same product from other firms at the market price.
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