ECONOMICS
COMPETITION AND MARKET STRUCTURES
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
each firm is very large
|
|
|
many other firms produce identical products.
|
|
|
there are no good substitutes for their goods
|
|
|
None of the above
|
Detailed explanation-1: -A perfectly competitive firm is known as a price taker because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors.
Detailed explanation-2: -In economic theory, perfect competition occurs when all companies sell identical products, market share does not influence price, companies are able to enter or exit without barriers, buyers have perfect or full information, and companies cannot determine prices.
Detailed explanation-3: -Answer and Explanation: In this market, firms sell identical products because almost every firm is relatively small to influence the market, due to which no firm has an incentive to react against the market, and every firm has to accept the market price.
Detailed explanation-4: -Sellers in the perfect competition are price takers because: Sellers get a lot of pressure from other competing firms to accept the prevailing equilibrium price in the market. Buyers influence the prices of products.
Detailed explanation-5: -In a perfectly competitive market, firms can only experience profits or losses in the short run. In the long run, profits and losses are eliminated because an infinite number of firms are producing infinitely divisible, homogeneous products.