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Chapter 8: Q.13 (page 211)

What is a “price taker” firm?

Short Answer

Expert verified

In a perfect market, the price of a product is determined by market forces rather than by individual firms.

Step by step solution

01

Definition

A price taker firm is one that must accept equilibrium price prevailing in the market and it has no ability to influence the price of its product.

02

Explanation

In a perfect competitive market, the price of a product is determined by market force and not by an individual firm. There are many sellers in perfectly competitive markets, who sell similar products and in that case, they must act as a price takers.

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Most popular questions from this chapter

Will a perfectly competitive market display allocative efficiency? Why or why not?

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?

How does a perfectly competitive firm decide what price to charge?

What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.

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