Competitive firms cannot individually affect market price because
A)There is an infinite demand for their goods.
B)Demand is perfectly inelastic for their goods.
C)Their individual production is insignificant relative to the production of the industry.

Question

Quizplus · Accepted Answer

Competitive firms are price takers, meaning they have to accept the market price as given. They have no market power and cannot affect the market price as they individually have an insignificant share of the market. The overall production of the industry will determine the market price. Options A and B are incorrect because they are unrealistic assumptions. Demand is not infinite, and inelastic demand means a change in price would not significantly affect demand but does not mean the demand is perfectly inelastic.

Competitive Firms Cannot Individually Affect Market Price Because