Competitive firms cannot individually affect market price because:

Question

Quizplus · Accepted Answer

Competitive firms are price takers, which means they have no control over the market price. This is because their individual production is insignificant in comparison to the total production of the industry. As a result, if a competitive firm raises its price, it will lose all its customers to other firms offering the same product at a lower price. Similarly, if it lowers its price, it can only attract a few customers, but it cannot influence the market price, which is determined by the overall supply and demand in the market. Options A and B are incorrect because they do not reflect the real situation in the market. Option D is incorrect because the government does not normally exercise control over the market power of competitive firms as they operate in a free-market environment.

Competitive Firms Cannot Individually Affect Market Price Because