What does it mean to say that a perfectly competitive firm is a price taker? Can't a firm set any price it chooses?

What will be an ideal response?


A firm can set any price it chooses, but in a perfectly competitive industry, it will do no good to choose anything but the market price. At a higher price, no one will buy (since products are assumed to be identical) and at a lower price, you lose revenue without gaining sales, since you can presumably sell all you want to at the market price. Thus the firm is said to be a price taker.

Economics

You might also like to view...

In many countries, an exchange-rate peg substitutes for ________

A) speculative attacks B) an export-oriented sector C) discretionary monetary policy D) capital controls

Economics

The above figure shows the market for apples. If the government restricts output to no more than 300 pounds, then

A) 300 pounds of apples will be sold at $3. B) 200 pounds of apples will be sold at $3. C) no apples will be sold. D) None of the above.

Economics

The above figure shows the payoff matrix for two firms, A and B, selecting an advertising budget. The firms must choose between a high advertising budget and a low advertising budget. Firm B's dominant strategy

A) does not exist. B) is to copy firm A. C) is to select a high advertising budget. D) is to select a low advertising budget.

Economics

The combined effect on the loanable funds market of a new technology that increases the marginal physical product of capital and a shift in consumers' preferences for more present consumption is

a. an increase in the interest rate b. a decrease in the interest rate c. unclear because each of the effects has an opposite influence on the interest rate d. an increase in the quantity of loanable funds demanded and supplied on the market e. a decrease in the quantity of loanable funds demanded and supplied on the market

Economics