Question
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.
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.
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