The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:
A) the market price is determined (through regulation) by the government.
B) the firm supplies a different good than its rivals.
C) the firm's output is a small fraction of the entire industry's output.
D) the short run market price is determined solely by the firm's technology.
E) the demand curve for the industry's output is downward sloping.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, individual firms have no power to affect the market price because they are price takers. The price is solely determined by the overall supply and demand within the industry. Therefore, the amount of output that a firm decides to sell has no effect on the market price. This is because the firm's output is a small fraction of the entire industry's output and therefore has no significant impact on the overall supply and demand balance.

The Amount of Output That a Firm Decides to Sell