PRINC OF ECONOMICS PKG >CUSTOM<
PRINC OF ECONOMICS PKG >CUSTOM<
7th Edition
ISBN: 9781305018549
Author: Mankiw
Publisher: CENGAGE C
Question
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Chapter 14, Problem 1CQQ
To determine

To determine:  The characteristic of the perfect competitive firm.

Expert Solution & Answer
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Answer to Problem 1CQQ

Answer: 

Option ‘c’ is correct.

Explanation of Solution

Option (c):

The competitive firm deals with the large number of buyers and sellers who trade homogeneous commodities, and the price is fixed by the market supply and demand forces. Thus, the firm is considered as a price taker. Thus, option ‘c’ is correct.

Option (a):

A profit-maximizing price is set at the point where the marginal revenue of the firm is equal to marginal cost. But in the competitive market, price is set by the equilibrium between the market demand and supply. Thus, option ‘a’ is incorrect.

Option (b):

Undercut price is done in an oligopoly. Thus, option ‘b’ is incorrect.

Option (d):

The largest market share is the driven motive for the managers whose remuneration is based on the sales revenue. Thus, option ‘d’ is incorrect.

Economics Concept Introduction

Concept introduction:

Perfect competitive firm: Perfect competition refers to the market structure featuring more number of sellers and buyers in the market where the firm can sell the homogenous products.

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