When the price level decreases, firms in imperfectly competitive markets will:
A) decrease output and increase the price.
B) decrease output.
C) decrease output and decrease the price.
D) increase output.

Question

Quizplus · Accepted Answer

In imperfectly competitive markets, firms have some degree of market power and can set their own prices. When the price level decreases, firms will face lower revenues and may choose to decrease output in order to maintain their profit margins. Additionally, firms may also choose to decrease their prices in order to remain competitive and attract more customers. Therefore, the correct answer is C, as firms will decrease output and decrease the price in response to a decrease in the price level.

When the Price Level Decreases, Firms in Imperfectly Competitive Markets