Why Will a Perfectly Competitive Firm Not Sell Its Product

question 68

Multiple Choice

Why will a perfectly competitive firm not sell its product below the prevailing market price?

• A) It faces inelastic demand.
• B) It can sell all it wishes at the market price.
• C) This would lead to a price war among sellers.
• D) The sellers in the market have agreed to not sell below a specified price.
• E) Its costs would increase dramatically.

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Definitions:

Payables-To-Sales Ratio

A financial metric that analyzes the relationship between a company's total payables and its total sales.

Net Operating Working Capital

A financial metric that highlights a firm's operational liquidity by subtracting current liabilities (excluding short-term debt) from current assets.

Current Ratio

A financial metric quantifying a firm's capability to fulfill its short-term liabilities with its present assets.

Aging Schedule

Breaks down accounts receivable according to how long they have been outstanding. This gives the firm a more complete picture of the structure of accounts receivable than that provided by days’ sales outstanding.