Question

In perfect competition, the prices charged by firms:

Select one:

a. are determined by market supply and demand.

b. are set by the government, since firms are price takers.

c. may be different depending on the particular firm's costs.

d. are the same in all markets, since firms are price takers.

Answer 1

In perfect competition there are many sellers and many buyers . All the firm sells homogeneous products . So each firm earns zero profit in the long run and price is equal to marginal cost . The price charged are same all over the market since goods are homogeneous . Firms are price takers because the pressure from competing firms forces them to accept equilibrium price . The market price is determined by supply and demand forces .

Answer : a. are determined by market supply and demand.