Which of the following best explains why price in competitive price-taker markets will tend to be driven to the minimum per-unit cost?
A) homogeneous products.
B) few sellers.
C) firms face downward-sloping demand curves.
D) free entry and exit.

Question

Quizplus · Accepted Answer

In a competitive price-taker market with free entry and exit, new firms can easily enter the market and existing firms can easily exit the market. This means that if prices are higher than the minimum per-unit cost, new firms will enter the market to take advantage of the profit opportunity, which will increase supply and drive prices down. Similarly, if prices are lower than the minimum per-unit cost, existing firms will exit the market, which will decrease supply and drive prices up. Therefore, in the long run, prices will be driven to the minimum per-unit cost in a competitive price-taker market with free entry and exit.

Which of the Following Best Explains Why Price in Competitive