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5 April, 10:12

When the price level decreases, firms in perfectly competitive markets will:

a. decrease output and increase the price

b. decrease output

c. increase output and decrease the price

d. increase output.

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Answers (1)
  1. 5 April, 11:30
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    The correct answer is option b.

    Explanation:

    The law of supply states that other things being constant, the price of the product and its supply are positively related. This means that an increase in price will cause the quantity supplied to increase and vice versa.

    In a perfectly competitive market, the firms are price takers. So a decrease in the price of the product will cause its quantity supplied to decline. Or in other words, when the price falls, the firms will reduce output.
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