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

Question

Quizplus · Accepted Answer

In perfectly competitive markets, firms are price takers, meaning they accept the market price as given. When the price level increases, these firms will increase output to maximize profits, as the higher price level means they can sell their goods at a higher price. They do not have the power to alter the price themselves.

When the Price Level Increases, Firms in Perfectly Competitive Markets