Question

If firms produce a homogeneous product, then?

1) consumers will be willing to pay different prices for output from different firms.
2) market output will not be a commodity.
3) individual firms can raise price without losing all sales.
4) products will be perfectly substitutable with one another.
5) the market may have multiple prices.

Answer 1

If firms produce a homogeneous product, products will be perfectly substitutable with one another, consistent with a perfect competition market where an individual firm cannot raise its price without losing sales.

Step-by-step explanation:

If firms produce a homogeneous product, the correct statement is: products will be perfectly substitutable with one another. This scenario is common in a perfect competition market structure, where numerous firms produce identical products. Such products are considered commodities, and even if one firm raises its prices, consumers can switch to another firm without noticing any difference in the quality or characteristics of the product. Therefore, the individual firm cannot raise its price without losing all its sales to competitors, establishing a uniform market price.