Question

The only firms that do not have market power are firms in perfectly competitive markets, which must charge a price ________. Because few markets are perfectly competitive:

1) equal to their marginal cost
2) higher than their marginal cost
3) lower than their marginal cost
4) not related to their marginal cost

Answer 1

Firms in perfectly competitive markets are price takers and must charge a price equal to their marginal cost, while a monopoly can set prices above marginal cost due to lack of competition.

Step-by-step explanation:

The only firms that do not have market power are firms in perfectly competitive markets, which must charge a price equal to their marginal cost. This is because in a perfectly competitive market, firms are price takers and have no ability to influence the market price of their goods. They must accept the market equilibrium price, which typically aligns with the firms' marginal cost. On the other hand, a monopoly represents a market where a single firm has significant market power, allowing it to charge higher prices, as it is not facing significant competition.