Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?
A) Owners of perfectly competitive firms realise that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits.
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realise that all of the firms sell virtually identical products.
C) Firms from other countries are able to produce similar products at lower costs.
D) Firms in these industries sell identical products.

Question

Quizplus · Accepted Answer

In perfectly competitive industries, firms sell identical, or homogenous, products. This means that consumers see all the products as equivalent, and as a result, firms cannot charge a higher price. If one firm tries to raise its price, consumers will simply buy from a different firm with a lower price. Therefore, firms cannot control the price of the product they sell in a perfectly competitive industry.

Firms in Perfectly Competitive Industries Are Unable to Control the Prices