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CA Foundation · Business Economics · Price Determination in Different Markets

In a perfectly competitive market for wheat, thousands of farmers produce identical output. The current market price is ₹2,500 per quintal. Farmer Rajesh, who is one of many producers, attempts to raise his selling price to ₹2,600 per quintal. What will happen to Rajesh's sales?

In perfect competition, individual producers are price-takers facing a perfectly elastic demand curve at the market price. Any attempt to raise price above ₹2,500 causes buyers to switch to identical products available at the market rate, eliminating the seller's sales volume.

  1. ASales will increase because he has differentiated his product quality
  2. BSales will drop to nearly zero because buyers will switch to competitors at ₹2,500Correct
  3. CSales will remain constant as all farmers are price-takers
  4. DSales will increase marginally as consumers value loyalty to local farmers

Explanation

In perfect competition, products are homogeneous and there are many buyers and sellers. A single farmer cannot raise price above the market price without losing all customers to competitors charging ₹2,500. Since buyers have perfect information and identical alternatives, no consumer will pay ₹2,600 when the market price is ₹2,500. This forces Rajesh to be a price-taker, not a price-maker.

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