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Chapter 8: Q.15 (page 212)

What prevents a perfectly competitive firm from seeking higher profits by increasing the price that it charges?

Short Answer

Expert verified

When a perfective competitive firm raises the price of its product in order to earn a large profit, all of its customers switch to its competitors.

Step by step solution

01

Definition

A perfectly competitive firm can increase its profit by increasing its production level and minimizing its losses by decreasing its production level.

02

Explanation

If a perfectly competitive firm increases the price of its product in order to earn a large profit then, all of its customers move to its competitors. This happens due to characteristics of a perfectly competitive market that firms are price-takers and many sellers are available in the market that is ready to sell their homogenous products at market price.

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