Question

Give reason or explain:

Single price prevails in perfect competition.

Answer 1

Under perfect competition, each firm is a price taker and the industry is a price maker. This is because there are a large number of firms selling homogeneous goods, i.e., similar goods. If any firm increases its price, the buyer will shift to another producer. If the firm reduces the price, it will not be able to cater to the demand that will be shifted to it on reducing the price. The market price in the industry is determined by the intersection of the market supply and market demand curves. Therefore, individual firms take the market price, so determined, as fixed and adjust their supply accordingly.