ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the government sets its price
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it produces a differentiated product
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a larger firm sets the price for the industry
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intense competition prevents it from influencing the market price
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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: -All firms sell an identical product (the product is a commodity or homogeneous). All firms are price takers (they cannot influence the market price of their products). Market share has no influence on prices.
Detailed explanation-3: -Firms in a perfectly competitive market are all price takers because no one firm has enough market control. Unlike a monopolistic market, firms in a perfectly competitive market have a small market share. Barriers to entry are relatively low, and firms can enter and exit the market easily.
Detailed explanation-4: -A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. Due to market competition, most producers are also price-takers. Only under conditions of monopoly or monopsony do we find price-making.
Detailed explanation-5: -It has limited production capacity. Now, if an individual firm lowers the price, all buyers in the market will rush to this firm for supplies of the product. But, by definition, the firm is so small that it cannot produce enough for all the buyers in the market.