Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Price Skimming
B
Penetration Pricing
C
Cost-Plus Pricing
D
Dynamic Pricing
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive market, firms aim to maximize profits by using a pricing strategy called "market pricing. " This means that they set their prices based on the market price, which is determined by supply and demand. Since many firms sell identical products, each firm is a price taker and cannot charge more than the market price without losing customers. For example, if all farmers sell apples at $1 per pound, a farmer cannot charge $1. 50 because buyers will simply go to another farmer.
Detailed Explanation
In a perfectly competitive market, firms set prices based on their costs plus a small profit margin. Other options are incorrect because Some might think this strategy works well, but it involves setting high prices initially; This strategy means starting with low prices to attract customers.
Key Concepts
Pricing Strategies
Market Structures
Topic
Profit Maximization Techniques
Difficulty
medium level question
Cognitive Level
understand
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