Question

In a competitive industry:

	A.	some firms face different prices than others.
	B.	some firms have higher marginal cost than others.
	C.	all firms have the same marginal cost curve.
	D.	all firms produce at the same marginal cost.

Answer 1

A competitive industry is characterized by a large number of firms supplying homogeneous products. Thus, no firm can charge a higher price because the perfec substitutes of the product is easily available at lower prices. Thus, the market faces a 'uniform price' for the product.

In order to supply the product at uniform prices, the firms produce until their marginal costs are equal to the price prevailing in the industry. If any one firm, suppose, faces a higher marginal cost MC₀ as compared to other firms MC₁, it must produce at a level where MC₀ = P while the other firms produce at MC₁ = P. This implies that the equilibrium is established at MC₀ = MC₁ = P. This implies that each firm faces 'Same Marginal Costs' to supply at a uniform price.

Thus, the correct answer is option D. all firms produce at the same marginal cost