Question: Perfectly Competitive Markets.

There are many firms in this perfectly competitive market.

Firm A charges $1 for pens.

Firm B charges $2 for pens.

Firm C charges $0.50 for pens.

What is the likely outcome:

a) Prices will equalize

b) All will charge $2

c) Each will stay at their current price

d) All will lower prices

I think prices would equalize (a). Because in a perfectly competitive market, firms can sell as much as they want but only at the equilibrium price. To increase profit, rather than lowering prices (in a price war) they would increase quanity sold.