Question

A firm that is attempting to meet the competition’s price may

have a defense to liability for price discrimination.
a) True
b) False

Answer 1

In a perfectly competitive market, several factors prevent a firm from seeking higher profits by increasing the price it charges, including market competition, the entry and exit of firms, and elastic demand.

Step-by-step explanation:

In order to prevent a perfectly competitive firm from seeking higher profits by increasing the price it charges, there are several factors at play:

1. Market competition: In a perfectly competitive market, there are numerous firms all selling identical products. If one firm tries to increase its price, consumers will simply choose to buy from another firm, causing the first firm to lose sales and potentially profits.
2. Entry and exit of firms: In a perfectly competitive market, new firms can enter and existing firms can exit freely. This means that if a firm increases its price, it risks attracting new competitors who may offer lower prices. Existing firms may also exit the market if they cannot compete with the higher prices.
3. Elastic demand: In a perfectly competitive market, demand tends to be elastic, meaning that a change in price has a relatively large impact on the quantity demanded. If a firm increases its price, consumers may choose to buy less or switch to alternative products.