Effect of Tennis Ball Producer Exit on Market Competition

Impact of Tennis Ball Producer Exit in a Perfectly Competitive Market

In a perfectly competitive market, there are many producers and consumers, and no individual producer has the power to influence the market price. When one producer exits the market, the total supply of tennis balls in the market decreases, but the remaining producers will increase their production to meet the market demand. As a result, the market price remains the same since the remaining producers are still competing with each other to sell their tennis balls.

Therefore, the exit of one producer does not affect the price of tennis balls in a perfectly competitive market. The correct option is (c) - the price of tennis balls does not change.

Given Question

Assume the market for tennis balls is perfectly competitive. When one tennis ball producer exits the market, what happens to the price of tennis balls?

Answer

When one "tennis-ball" producer exits the market in a perfectly competitive market, the price of tennis balls does not change.