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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?
A price taker firm is a firm which does has any market power to dictate terms and has to sellgoods at equilibrium or market price only. Any firm in the perfectly competitive market is a pricetaker and so it sells at price lower than market then it will suffer loss and if it sells above themarket price then it will not be able to sell anything. So, they will sell at equilibrium price only.Now the firms are selling at marginal cost which is equilibrium price, then it means that they arenot generating any profits, so even when firms are selling extremely high quantity they will not beable to increase price and their cost may increase because of diseconomies of scale and sofirms will not prefer selling extremely high quantities.
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Chapter 8
Perfect Competition
How Markets Work
Firm Behavior and the Organization of Industry
Lik N.
October 19, 2021
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So we know that firms are priced acres. That means they can affect the price. But if the price is study and white can firms just keep increasing their quantity and just keep raising profits? Well, the answer to that is that we have to finish the market and productivity, Frank. That's why the marginal cost purvis our ports. Sloping costs keep gaining bigger and bigger. The more quantity you're producing in your factory. Uh, so don't forget that we always wanna produce when marginal cost, it was marking a revenue. If you go to a quantity above this point, you're going to get the marginal cost is going to be greater than the marginal revenue. So you're going to spend more money making the product, then selling it, And so, by definition, you're going to start making losses.
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