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Why can't competitive firms affect price?

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Why is it that a firm in a perfectly competitive market can sell as much as it wants without a change in price occurring? As a result, what is the elasticity of demand affecting the firm then? Please explain.

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Solution Summary

The following discusses the characteristics faced by the competitive firm. Specifically, why the firm can not affect price and how this relates the the elasticity of demand facing the firm.

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In a perfectly competitive market we say that firms are price takers. That is they must accept whatever the market price is for the product. This stems from the fact that perfectly competitive markets are characterized by a very large number of firms. So each individual firm contributes a very small amount of the market output. because of this is doesn't matter how much or ...

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