Does a perfectly competitive producer have any incentive to ...

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Does a perfectly competitive producer have any incentive to undercut the current market price? Explain your answer
 
  What will be an ideal response?

Question 2

Kristen has an income of 450 per year to spend on music CDs and movies on DVDs. The price of a CD is 15. The indifference curves in the figure above (I1, I2, and I3 ) reflect Kristen's preferences. If the price of a DVD is 22.
 
  50, then Kristen buys ________ DVDs; if the price of a DVD is 18.00, then Kristen buys ________ DVDs. A) 12; 14
  B) 5; 10
  C) 10; 15
  D) 7.5; 12.5

[ebenov]

Answer to Question 1

A perfectly competitive producer has no incentive to undercut the market price because the producer can sell all he or she produces at the going market price. In this case, a producer will not lower the price he or she charges because no additional sales can be garnered. Hence it is nonsensical to undercut the market price because the lower price means lower revenue and hence lower profit.

Answer to Question 2

C

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TYSM

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Gracias!