Question

If a perfectly competitive firm raises its price above the prevailing market rate, how much of its sales might it lose? Why? Can a competitive firm ever raise its prices? If so, when?

Answer 1

Answer) A perfectly competitive firm is a price taker, which means that it must accept the price which is determined by the market. The individual seller has no power over price. If a perfectly competitive firm attempts to charge even a tiny amount more than the market price, it will be unable to make any sales. Individual firms are a tiny fraction of the overall market. Perfect competition occurs when there are a large number of sellers and buyers, firms can freely enter and exit the market depending upon the profit situations. In the real world, perfect competition is just a hypothetical market.