In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers, meaning they cannot set the price of their goods or services. Instead, the market determines the price. Therefore, the primary decision a firm can make is about the quantity of goods or services to produce, based on the market price to maximize their profit. Choices related to price, labor, and quality are influenced by market conditions and competition, but the direct choice firms have is on the quantity to produce.

In a Free Market Economy, Firms Operating in a Perfectly