Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Firms can set their prices above the market equilibrium without losing customers.
B
Individual firms are price takers and must accept the market price.
C
If firms are making an economic profit, new firms will enter the market in the long run.
D
A price floor set above the equilibrium price will lead to a surplus in the market.
E
Firms can influence the overall market supply by reducing their output.
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive market, many firms sell identical products, and no single firm can influence the market price. Each firm is a price taker, meaning they accept the market price set by supply and demand. If a firm tries to charge more than the market price, buyers will simply go to other firms selling the same product for less. For example, if a farmer sells apples at $1 per pound, they cannot charge $1. 50 because customers will buy from other farmers instead.
Detailed Explanation
Other options are incorrect because Firms cannot set prices higher than the market price; Firms in a competitive market must accept the market price.
Key Concepts
Perfect Competition
Market Equilibrium
Price Floors
Topic
Market Structures in Economics
Difficulty
hard level question
Cognitive Level
understand
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