Question

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run. Which of the following is one reason for this?

A. Owners of perfectly competitive firms realize that their short-run profits are temporary. Therefore, they either sell their businesses or develop other products that will earn short-run profits.B. Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms. But eventually consumers realize that all of the firms sell virtually identical products.C. Firms from other countries are able to produce similar products at lower costs.D. Firms in these industries sell identical products.

Answer 1

Answer: Option D

Step-by-step explanation: In simple words, perfect competition refers to the market structure in which there are huge number of buyers and sellers and each of them operate at a very small level. All the firms in such industry sells identical products and make normal profits both in short run and long run.

No firm in a perfect competition can influence prices as they each operate at a small level and sells identical goods, therefore, a slight change in price will shift the demand to other firms and the firm charging high prices will eventually go out of the market.

In such a structure , the pries are determined by the market forces of demand and supply.