The firm in a perfectly competitive market will:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm is a price-taker and cannot influence the price. Therefore, the firm will set the price equal to the market price, which is determined by the forces of supply and demand. The firm will produce at the level where the marginal cost equals the price, which means that the firm will set the price higher than the variable cost of producing the product or service, but not higher than the total cost (fixed and variable). Setting the price lower than the variable cost means that the firm is operating at a loss, which is not sustainable in the long run. Setting the price as low as possible to prevent competition is not a viable strategy in a perfectly competitive market, as all firms are price-takers and cannot prevent competition.

The Firm in a Perfectly Competitive Market Will