Chapter 21: Problem 25

Which statement about the perfect competitor is true? (LO4) a) She may charge a little below market price to get more customers. b) She may charge a little above market price to imply that her product is superior. c) She will always charge the market price. d) None of these statements is true.

Short Answer

Expert verified

In a perfectly competitive market, each firm is a price taker and must accept the prevailing market price. Among the given statements, the one that is true for a perfect competitor is statement (c): She will always charge the market price.

Step by step solution

Understand the Perfect Competition Market Structure

In a perfectly competitive market structure, there are a large number of buyers and sellers, each selling a homogeneous product (i.e., all products are identical, and there is no differentiation between them). In addition, everyone has perfect information about the market, and no one seller or buyer can influence the market price. Due to these conditions, each firm in a perfectly competitive market is a price taker and must accept the prevailing market price.

Analyze Statement (a)

Statement (a) says: "She may charge a little below market price to get more customers". In a perfectly competitive market, sellers can't charge below the market price because their product is homogeneous and there's perfect information, which means the price will be the same for everyone in the market. Therefore, this statement is false.

Analyze Statement (b)

Statement (b) says: "She may charge a little above market price to imply that her product is superior." In a perfectly competitive market, all products are identical, and there's no differentiation. If a seller tries to charge above the market price, no one will buy from them because everyone knows they can get the same product at the market price. Hence, this statement is also false.

Analyze Statement (c)

Statement (c) states: "She will always charge the market price." As previously discussed, in a perfectly competitive market, each firm is a price taker and must accept the prevailing market price. Therefore, a perfect competitor will always charge the market price. This statement is true.

Analyze Statement (d)

Statement (d) says: "None of these statements is true." Since Statement (c) is true, this statement is false.

Select the Correct Answer

Based on our analysis, the correct answer is (c) She will always charge the market price.

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