A price-taking firm can exert no control over price because

Question

Quizplus · Accepted Answer

A price-taking firm is a small player in a large market where many other firms produce a product that is nearly identical to its product (option D). The individual production of this firm is insignificant relative to production in the industry (option C). Due to this, the firm has no market power and cannot influence the price it charges. The firm takes the prevailing market price as given and adjusts its output quantity to maximize its profit. Hence, both options C and D are correct, making option E the best choice. Option A is incorrect because a downward-sloping demand curve indicates that the firm has some market power and can exert some control over price. Option B is incorrect because the presence or absence of substitutes does not necessarily determine whether the firm is a price-taker or price-setter.

A Price-Taking Firm Can Exert No Control Over Price Because