A perfectly competitive firm can
A) sell all of its output at the prevailing market price.
B) set a higher price to customers who are willing to pay more.
C) raise its price in order to increase its total revenue.
D) sell additional output only by lowering its price.
E) usually not sell all the output it produces, but still "over-produces" because there are some periods when it can sell the extra output at very profitable prices.

Question

Quizplus · Accepted Answer

A perfectly competitive firm is a price taker, which means it has to accept the prevailing market price for its product. The firm has no control over the price and cannot set a higher price or raise its price without losing all its customers. The only way for a perfectly competitive firm to sell additional output is by lowering its price. However, since the firm is a price taker, it cannot sell its output at a higher price to customers who are willing to pay more. Finally, it is unlikely that a perfectly competitive firm will over-produce since it cannot sell its output at a profitable price.

A Perfectly Competitive Firm Can