Suppose that Dave's Camera Shop operates in a competitive market for cameras, which of the following statements is (are) true?
(i) he can maximise profit by raising his prices
(ii) he can maximise profit by altering the quantity of cameras that he supplies
(iii) he will be able to earn a profit only if he differentiates his cameras from the rest of the market
A)(i) only
B)(ii) only
C)(i) and (ii)
D)(iii) only

Question

Quizplus · Accepted Answer

In a competitive market, individual firms are price takers, meaning they cannot influence the market price by altering their own prices due to the high level of competition and product homogeneity. Therefore, Dave cannot maximize profit by raising his prices as suggested in (i), because his sales would likely decrease as customers turn to competitors offering similar cameras at the market price. However, he can maximize profit by adjusting the quantity of cameras he supplies to the market, aligning with point (ii), to meet the equilibrium price where marginal cost equals marginal revenue. Statement (iii) is not necessarily true in a competitive market focused on homogeneous products, where differentiation is not the primary strategy for earning a profit; instead, efficiency and cost management are key.

Suppose That Dave's Camera Shop Operates in a Competitive Market