In a purely competitive industry, each firm
A) determines its own price.
B) produces a differentiated product.
C) can easily enter or exit the industry.
D) engages in various forms of nonprice competition.

Question

Quizplus · Accepted Answer

In a purely competitive industry, firms have no control over price and are price takers. Therefore, they must accept the market price for their product. This means that each firm cannot determine its own price (A is incorrect) and they do not produce differentiated products (B is incorrect). They also do not engage in nonprice competition (D is incorrect) as there is no room for product differentiation or other forms of competition in a purely competitive industry. The only thing firms in a perfectly competitive market can do is enter or exit the market easily (C).

In a Purely Competitive Industry, Each Firm