When a competitive business sets prices, it takes into account:
(i) marginal costs.
(ii) competitive prices.
(iii) prices from two decades back.
(iv) monopoly prices.
A)(i) only
B)(i) and (ii)
C)(i), (ii), and (iv)
D)(ii) and (iv)

Question

Quizplus · Accepted Answer

A competitive business sets prices based on the marginal costs involved in producing and selling the product, as well as the prevailing competitive prices in the market. Prices from two decades back may not be relevant, and monopoly prices do not apply to a competitive business. Therefore, options (iii) and (iv) can be eliminated, leaving options (i) and (ii). However, since a competitive business must consider both marginal costs and competitive prices when setting prices, the best choice is (B), which includes both (i) and (ii).

When a Competitive Business Sets Prices, It Takes into Account