Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run.Which of the following is one reason for this?
A)Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits.
B)Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products.
C)Firms from other countries are able to produce similar products at lower costs.
D)Firms in these industries sell identical products.

Question

Quizplus · Accepted Answer

Firms in perfectly competitive industries sell identical products, which means that consumers can easily switch between different brands without incurring any additional cost. As a result, each firm has no control over the market price and must accept the prevailing market price to remain competitive. Any attempt to charge a higher price will result in customers switching to other brands, which will cause the sales to decline to zero. Additionally, the low barriers to entry in the perfectly competitive markets ensure that new entrants can always enter the market and compete away any abnormal profits earned by existing firms.

Firms in Perfectly Competitive Industries Are Unable to Control the Prices