Question

Suppose a spinach farmer operates in perfect competition. At the market price of $3.00 per bunch, the farmer sells 125 per day. If the farmer increases her price to $3.01 she will sell how many bunches?

Answer 1

Perfectly competitive firms operate in a market having a large number of sellers selling identical and homogeneous goods to a large number of buyers, at the same market price.

Firms in these markets face a highly elastic demand, because they are all price takers and no firm has enough market power to affect market price, since the same product is being sold by all oter sellers at the market price.

In the given case, if the spinach farmer decides to increase his price to $3.01 (which is greater than market price of $3), his sales will drop to 0 (as the buyers will move to other sellers selling the same spinach at market price of $3)

Thus, the farmer will sell 0 bunches at a price of $3.01