If a perfectly competitive firm raises its price,
A) the quantity demanded of its good falls because the firm faces a downward- sloping demand curve
B) the quantity demanded of its good falls to zero
C) new firms will enter, attracted by the higher price
D) it loses some of its market share
E) other firms in the industry must follow the leader

Question

Quizplus · Accepted Answer

In a perfectly competitive market, each firm is a price taker due to the homogeneous nature of the product. If a firm raises its price above the market price, consumers will switch to the numerous other firms offering the same product at the lower market price, reducing the quantity demanded for the price-increasing firm to zero.

If a Perfectly Competitive Firm Raises Its Price