Question

The equilibrium price of a good or service in a competitive market is

a. Higher than the opportunity cost of producing the product.

b. Higher than it should be because profits are included in the price.

c. Lower than it should be because bankruptcies are common in competitive markets.

d. A reflection of the opportunity cost of producing the product.

Answer 1

Option d

d. A reflection of the opportunity cost of producing the product.

In perfect competition, most of the firms can make only normal profits means the firm's price is just reflection of the opportunity cost of producing the product.

It is not above or below the opportunity cost of production as an opportunity cost of production is the production of some other good at the same time with the given resources and that gives the normal profit to the firms.