Max owns a thrift store where he sells second-hand clothing. Which of the following is true about his participation in a competitive market?

• A. Max is a price taker and cannot influence the market price of second-hand clothing.
• B. Max can set any price he wants because there are no other sellers in the market.
• C. Max faces a downward-sloping demand curve for his products.
• D. Max can increase his profits by restricting the quantity of clothing he sells.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of a competitive market. In a perfectly competitive market, there are many sellers offering identical or very similar products, and no single seller can influence the market price.
2. Step 2: Recognize that in such a market, each seller is a price taker, meaning they must accept the market price as given and cannot set their own price above it without losing all customers.
3. Step 3: Recall that the demand curve faced by an individual seller in a competitive market is perfectly elastic (horizontal) at the market price, not downward-sloping, because buyers can easily switch to other sellers.
4. Step 4: Understand that restricting quantity to increase profits is not effective in a competitive market because the seller cannot influence the market price; any reduction in quantity sold simply reduces revenue without raising price.
5. Step 5: Conclude that the correct statement is that Max is a price taker and cannot influence the market price of second-hand clothing, consistent with the nature of competitive markets.