Of the following characteristics of competitive markets,which are necessary for firms to be price takers? (i) There are many sellers.
(ii) Firms can freely enter or exit the market.
(iii) Goods offered for sale are largely the same.

Question

Of the following characteristics of competitive markets,which are necessary for firms to be price takers? (i)	There are many sellers.
(ii)	Firms can freely enter or exit the market.
(iii)	Goods offered for sale are largely the same.

Quizplus · Accepted Answer

For firms to be price takers, there must be many sellers (i) and goods offered for sale must be largely the same (iii), which means firms cannot differentiate their products and have to sell at the going market price. However, the freedom of entry and exit (ii) is not necessary for firms to be price takers, as long as the market is competitive with many sellers and homogeneous products.

Of the Following Characteristics of Competitive Markets,which Are Necessary for Firms