In a perfectly competitive market, if a firm increases its output, what happens to the market price?

• A. Price increases
• B. Price decreases
• C. Price remains constant
• D. Price becomes unpredictable

Answer: (C)

In a perfectly competitive market, many firms sell identical products and no single firm can influence the price. Each firm takes the market price as given. So if one firm increases its output, it can sell more units, but only at the prevailing market price. The price stays the same because it’s determined by the overall supply and demand in the industry, not by any individual firm’s production. Only a change in the market as a whole (a shift in aggregate supply or demand) would move the price. Thus, the market price remains constant.