In perfect competition, price is determined by?

• A. Government-set price controls.
• B. Total fixed costs of the industry.
• C. The intersection of market demand and market supply.
• D. Each firm's marginal cost curve.

Answer: (C)

In a perfectly competitive market, the price is set where the overall market demand and market supply meet. There are many buyers and sellers, identical products, and no one firm can influence the price, so each firm takes the price as given and decides how much to produce based on it. The market supply is the total quantity firms are willing to supply at each price, derived from their marginal costs, and the intersection with market demand determines the equilibrium price and quantity. That price then guides each firm to produce where its own marginal cost equals the price. The other options don’t fit because price controls are policy-driven, fixed costs don’t determine the market price, and a single firm’s marginal cost is about its own production, not the market-wide price.