Multiple Choice QuestionThe following statement is true about what type of market: the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price.Multiple choice question.A perfectly competitive marketA free marketAn imperfectly competitive market
Question
Multiple Choice QuestionThe following statement is true about what type of market: the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price.Multiple choice question.A perfectly competitive marketA free marketAn imperfectly competitive market
Solution
The correct answer is A. A perfectly competitive market.
In a perfectly competitive market, all firms are price takers, meaning they must accept the market price as given. When output increases, the price decreases not only for the additional units produced but also for all previous units that could have been sold at a higher price. This is because in a perfectly competitive market, all units of a good are identical, and buyers do not prefer one seller over another. Therefore, if a firm tries to sell its product at a higher price, buyers will purchase from other firms, forcing the original firm to lower its price.
In contrast, in a free market or an imperfectly competitive market, firms have some control over the price of their product. They can differentiate their product from others in the market, allowing them to sell at a higher price without losing all of their customers. Therefore, the statement does not apply to these types of markets.
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