Elsie is a perfectly competitive dairy farmer. The market price of milk was $2.40 per litre but just fell to $2.20 a litre. Elsie

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As a perfectly competitive dairy farmer, Elsie has no market power, meaning she must take the market price for her milk. The market price has fallen to $2.20 per litre, so Elsie must also lower her price to $2.20 in order to sell any milk. Therefore, she can sell as much milk as she wants at $2.20 a litre, as long as there is demand for it. She cannot charge some customers $2.40 a litre to stay in business, as this would be price discrimination and violate the rules of perfect competition. She also cannot charge her initial customers $2.40 a litre, as the price has fallen for all buyers in the market. While it is true that quantity demanded is higher at lower prices, this doesn't impact Elsie's ability to sell her milk at the market price. Finally, there is no indication that Elsie will produce a different amount of milk at the different prices.

Elsie Is a Perfectly Competitive Dairy Farmer