Question 23
Market StructuresA perfectly competitive firm does not influence the demand for its commodities by lowering its price below the market price because
- A.it is illegal price cutting
- B.other competitors will be angry
- C.total revenue will decline due to its inelastic demand curve
- D.it is able to sell all it wants at the market price
- E.it does not maximize profit.
Show the answer and explanation
Answer: D (it is able to sell all it wants at the market price)
Explanation
A perfectly competitive firm faces a perfectly elastic demand curve: it can sell any quantity at the market price, so cutting price only loses revenue.