what prevents a perfect competitive firms to lower the product price and capture the entire market?
Dear Student.
Under perfect competition there is homogeneous product i.e. every seller selling same product.if any particular seller increase its price than buyer can easily move to another seller.Now the case when they can sell product at lower price and try to capture the market. this can be done but not in long run as we know that all are selling same product that means there inputs and techniques are same every seller operating at the lowest possible long run curve with normal returns so if any seller sell the product below that level he can attract more buyer but will surely lose money and as a result they have to exit the market. that is why in perfect competition by lowering the price buyer can never occupy th market.
Regards
Under perfect competition there is homogeneous product i.e. every seller selling same product.if any particular seller increase its price than buyer can easily move to another seller.Now the case when they can sell product at lower price and try to capture the market. this can be done but not in long run as we know that all are selling same product that means there inputs and techniques are same every seller operating at the lowest possible long run curve with normal returns so if any seller sell the product below that level he can attract more buyer but will surely lose money and as a result they have to exit the market. that is why in perfect competition by lowering the price buyer can never occupy th market.
Regards