Dear experts
In a perfect competitive market, homogenous products are sold and so the price at which the sellers sell the products remain the same. But if the seller increases the price of the product he will lose his customers .My question is what if the seller brings down the price of the product ? Then will it be that more people will buy the product of the seller ?Please answer my question as fast as you can.
Thank You.
Under perfect competition market, the price of the product cannot be reduced by any particular firm. This is because the price of the product is always equal to its marginal cost of production and therefore, if the firm intentionally decreases its price, then it won't be profitable for the firm to continue the business.Also, a perfectly competitive firm is a price taker, and not a price maker in the market, that is, it sells the product at a price which is determined by market demand and market supply.
However, if a particular firm in the perfect competition market manages to reduce its price by minimising its cost of production, then it would be able to capture all the market share because the customers of its competitors will start buying the product from the firm at the lower price as products of a perfectly competitive market are homogenous.
However, if a particular firm in the perfect competition market manages to reduce its price by minimising its cost of production, then it would be able to capture all the market share because the customers of its competitors will start buying the product from the firm at the lower price as products of a perfectly competitive market are homogenous.