Why does a firm in a competitive industry charge the market price?

Question

Quizplus · Accepted Answer

If a firm charges less than the market price, it loses potential revenue since it could have charged a higher price and earned more profit. If a firm charges more than the market price, it loses all its customers to other firms since customers will prefer to buy from firms charging lower prices. Thus, the only viable strategy for a firm in a competitive industry is to charge the market price and sell as many units of output as it wants to at that price. Therefore, all of the above options are correct.

Why Does a Firm in a Competitive Industry Charge the Market