Which of the following statements is (are) TRUE of price-taking firms?
I. ΔTR/ΔQ = P = MR
II. Price takers must lower their price to sell additional units of output because demand curves slope downward.
III. If a price taker decides to increase output, the market price will decrease.
IV. Examples of price takers include McDonald's, Burger King, Wendy's, and SONIC Drive-in.

Question

Quizplus · Accepted Answer

I. ΔTR/ΔQ = P = MR is true for price-taking firms because they face a perfectly elastic demand curve at the market price, meaning they can sell as much as they want at the market price, making the marginal revenue (MR) equal to the price (P). Statements II and III are incorrect because price-taking firms, by definition, cannot influence the market price by altering their output level; the market price is given to them. Statement IV is incorrect because the mentioned companies are not perfect examples of price-taking firms; they have some degree of market power and can influence their prices.

Which of the Following Statements Is (Are) TRUE of Price-Taking