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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling an extremely high quantity?

To determine

The reason why a perfectly competitive firms cannot increase its profits by selling an extremely high quantity.

Explanation

In the perfect competitive market, the firms face the horizontal demand and there exists zero economic profit in the long run.

In the perfect competitive firm, there are a large number of sellers so each firm has the small portion of market share due to which the marginal cost and average cost also increases. These firms are the price takers so these firms subsidize very insignificant amount of output. The prices are set by the forces of market demand and supply...

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