Does perfect competition have a price floor or a price ceiling?
Well though an obvious answer seems to be “both,” but there is more to it. In a perfect competition, if any firm increases the price, the people would immediately stop buying from it and switch over to the other firms since the products offered are the same. Thus a firm has a price ceiling. The price cannot be increased beyond the limit set by th industry. As far as a floor is concerned, the firms cannot reduce the prices much. If one firm reduces the price, the other firms also do the same. So ultimately the firms will suffer loses if they keep decreasing the price. This way the firms will shut down and the industry wil shrink. To frame it exactly, “Perfect Competition has a Stronger ceiling than compared to the wekaer floor.” The demand is elastic. Even a slight variation of price by a particular firm will lead to a decrease in its price. The demand is rather Highly Elastic. Hope this helps.
