If two small perfectly competitive firms merge, the merged firm will be:
A)a price-taker.
B)a market leader.
C)a price-discriminator.
D)an oligopoly.

Question

Quizplus · Accepted Answer

A perfectly competitive market is characterized by many small firms that are price-takers, meaning they have no control over the price of the product and must accept the prevailing market price. When two small perfectly competitive firms merge, they become a larger firm, but the market itself remains unchanged. The merged firm will still be a price-taker because it is only one of many firms in the market and cannot influence the market price. Thus, choice A is the best answer. The merged firm will not be a market leader or an oligopoly because it does not have enough market power to control prices or restrict competition. It will also not be a price-discriminator because price discrimination requires the ability to set different prices for different groups of customers, which is not possible in a perfectly competitive market.

If Two Small Perfectly Competitive Firms Merge, the Merged Firm