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Chapter 8: Q13 (page 211)

What is a “price taker” firm?

Short Answer

Expert verified

A price taker firm is the firm that charges price determined by the market.

Step by step solution

01

Definition 

A firm is price taker, when it just has to sell at industry determined price. It has no control on its own individual price.

02

Explanation 

Perfect Competition is a market with large number of buyers and sellers, transacting homogenous goods, with perfect information.

So, the prices are uniform in industry and demand is perfectly elastic (horizontal). Individual firms can sell infinite quantities at constant price.

Large number of sellers also imply that buyers have insignificant share in market supply, and can't influence price.

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Most popular questions from this chapter

Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.

A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How “small” is “small”?

Assuming that the market for cigarettes is in perfect competition, what does allocative and productive efficiency imply in this case? What does it not imply?

How does the average cost curve help to show whether a firm is making profits or losses?

Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?
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