When the price level increases, firms in perfectly competitive markets usually have an increase in profit per unit and increase output.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, price and marginal revenue are equal, so when the price level increases, firms can charge more for their output, leading to an increase in profit per unit. To take advantage of this, firms will increase output as long as their marginal cost is less than the price they are receiving. Therefore, an increase in the price level will lead to an increase in both profit per unit and output for firms in perfectly competitive markets.

When the Price Level Increases, Firms in Perfectly Competitive Markets