Explain why a perfectly competitive firm does not expand its sales without limit if its horizontal demand curve indicates that it can sell as much as it desires at the current market price.

Question

Justine Gill

Business

16 December, 23:46

Explain why a perfectly competitive firm does not expand its sales without limit if its horizontal demand curve indicates that it can sell as much as it desires at the current market price.

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Jacey Tucker · Answer 1

This is because if they keep on increasing their output they run into increasing marginal costs and/or they run out of capacity.

In the sort run, firms can not increase their output without limit. If they do, they will increase their marginal costs. This is because they will start to outstrip their capacity to produce. Since we are talking about the short run, they will not be able to increase that capacity.