What is the consequence of a firm in a competitive market selling a homogenous product?
A) The firms capture some market power.
B) All the firms in the industry are the same size.
C) Firms in the industry can produce the same product with a different quantity of inputs.
D) The product sold by one firm is a perfect complement for the products sold by other firms in the industry.
E) The product sold by one firm is a perfect substitute for the products sold by other firms in the same industry.

Question

Quizplus · Accepted Answer

When a firm in a competitive market sells a homogenous product, the product is a perfect substitute for the products sold by other firms in the same industry. In such a scenario, consumers have no preference for one firm's product over another's, which puts pressure on firms to keep prices low to remain competitive. This leads to firms having little to no market power and being price takers, meaning they have to accept the market price for their product. Therefore, option E is the correct answer.

What Is the Consequence of a Firm in a Competitive