Which of the following is correct?
A) Both purely competitive and monopolistic firms are "price takers."
B) Both purely competitive and monopolistic firms are "price makers."
C) A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D) A purely competitive firm is a "price maker," while a monopolist is a "price taker."

Question

Quizplus · Accepted Answer

A purely competitive firm is a "price taker" because it has no market power to influence the market price; it must accept the market price as given. On the other hand, a monopolist is a "price maker" because it has significant market power and can set the price at a level that maximizes its profits. A monopolistic firm can also exert some influence on price, but it faces a downward sloping demand curve and cannot charge as high a price as a monopolist. Therefore, both are not price takers, but a monopolist is a price maker while a purely competitive firm is a price taker.

Which of the Following Is Correct