Question

Which of the following situations best fits with the description of a firm in a perfectly competitive market?


GaryNote constantly offers discounts to steal customers from EricNote, which retaliates by offering price cuts.


a

GaryNote has many competitors in the market, and each firm differentiates its product to gain customer loyalty.


b

GaryNote can hire as many workers as it wants at the market wage, but it must decrease its price to sell more output.


c

GaryNote sets its own price for its output, but because of market competition, it earns zero economic profit in the long run.


d

GaryNote can sell as many units of output as it wants at the market price but will lose all its customers if it charges a higher price.


e



























Question
56 of 60

Answer 1

Answer: e

Reason: In perfect competition a firm is a price taker — it can sell any quantity at the market price but loses all customers if it charges more. The other choices describe oligopoly (a), product differentiation/monopolistic competition (b), a firm facing a downward‑sloping demand (c and b), or inconsistent behavior (c).