Question

When perfect competition prevails, which characteristic of firms are we likely to observe? They are all price takers. They all try to operate where price equals average variable cost. They all try to operate where price equals total cost. None of them ever has diminishing marginal returns.

Answer 1

They are all price takers.

Step-by-step explanation:

A perfect competition is characterised by many buyers and sellers of homogenous goods and services.

Market price is set by the forces of demand and supply. Therefore, firms are price takers. Because all firms sell identical goods, no seller can set the price for her goods. If a seller attempts to sell above the market price, it would lose patronage. A seller would have no incentive to sell below market price because they would be earning losses.

Perfect competition produces at : price = marginal cost = marginal revenue.

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