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Zorluk: ZorPerfect Competition: Characteristics and Assumptions

Suppose a firm operates in a market characterized by a large number of buyers and sellers, complete freedom of entry and exit, and identical products. If this firm decides to set its selling price slightly above the prevailing market equilibrium price, what will be the immediate economic consequence?

  1. The firm will lose all of its sales because buyers have perfect knowledge and access to identical substitutes at the market price.Cevap
  2. B
    The firm's total revenue will increase because demand in the overall market is downward-sloping.
  3. C
    The firm will retain a portion of its customer base due to consumer brand loyalty.
  4. D
    Rival firms in the industry will follow the price increase to raise overall industry profits.

Cevap

The firm will lose all of its sales because buyers have perfect knowledge and access to identical substitutes at the market price.
In a perfectly competitive market, individual firms are price takers facing a horizontal, perfectly elastic demand curve. Because all goods are homogeneous and buyers have perfect information, setting a price above market equilibrium forces buyers to switch completely to rival sellers, reducing the price-raising firm's sales to zero.

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1
Identify the market structure from the given assumptions
The market satisfies all conditions of perfect competition (homogeneous products, many buyers/sellers, perfect mobility, and perfect information).
These characteristics mean no single firm has market power to influence price.
2
Determine the price elasticity of demand facing an individual firm
The demand curve facing the firm is perfectly elastic (horizontal) at the market price.
Because goods are perfect substitutes, consumers will switch immediately to other sellers if one seller raises its price.
3
Evaluate the outcome of charging above the market price
Quantity demanded for this firm drops to zero.
As a price taker, the firm can sell any amount at the prevailing price, but zero at any price higher than the market price.

Anahtar Kavram

Perfect Elasticity of Individual Demand in Perfect Competition
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Perfect Competition: Characteristics and Assumptions

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