Question

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

A) the market price is determined (through regulation) by the government
B) the firmʹs output is a small fraction of the entire industryʹs output
C) the demand curve for the industryʹs output is downward sloping
D) the firm supplies a different good than its rivals
E) the short run market price is determined solely by the firmʹs technology

Answer 1

The correct answer is option B.

Step-by-step explanation:

In a competitive industry, there is a large number of buyers and sellers. There are so many consumers and producers that the economic decision of an individual has no effect on the market equilibrium. The firms are price takers and not price makers.

The equilibrium price is determined by the intersection of market demand and market supply. The output supplied by a single firm constitutes only a small portion of the market supply of output. So the supply decision by a single firm will have no effect on the market price.