Price in a perfectly competitive industry:

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, the price is determined by the market and is the same for all firms. Therefore, each firm can sell as much as it wants at this market price. Since the market is perfectly competitive, the firm is a price taker and cannot affect the price by its own production decisions. As a result, the firm's revenue is directly proportional to the quantity it sells, i.e., its marginal revenue equals the price. Therefore, the firm will maximize profit by producing up to the point where marginal cost equals marginal revenue, which in a perfectly competitive market is equal to the market price. Thus, the answer is B - the price is always equal to marginal revenue for the firm.

Price in a Perfectly Competitive Industry