Firms in a perfectly competitive market:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms do not need to advertise because they sell identical products and consumers will choose the lowest-priced option. Therefore, firms compete solely on price and cannot differentiate their products with advertising. A) is incorrect because undercutting prices is the main way firms compete in an effort to gain market share. B) is also incorrect because offering slightly different products is not possible in a perfectly competitive market where products are identical. C) is incorrect because reducing output would result in lower profits due to the fixed costs associated with production.

Firms in a Perfectly Competitive Market