In a competitive market, whether a maker of action cameras is charging a price above, below, or equal to the market equilibrium price depends on:

• A. the cost of production alone, regardless of market conditions
• B. government regulations that fix the price of action cameras
• C. the interaction of supply and demand for action cameras
• D. the firm's ability to set prices independently of the market

Answer: (C)

Verified step by step guidance

1. Understand that in a competitive market, the price of a good is determined by the interaction of supply and demand, not solely by production costs or government regulations unless those regulations fix prices.
2. Recall that the market equilibrium price is the price at which the quantity of action cameras demanded by consumers equals the quantity supplied by producers.
3. Recognize that individual firms in a perfectly competitive market are price takers, meaning they cannot set prices independently; they must accept the market equilibrium price.
4. Analyze how shifts in supply or demand curves affect the equilibrium price, which in turn influences whether a firm's price is above, below, or equal to that equilibrium.
5. Conclude that the correct determination of whether a firm charges above, below, or at the equilibrium price depends on the overall market forces of supply and demand interacting.