Firms that exhibit price-taking behavior

Question

Quizplus · Accepted Answer

Price-taking behavior refers to a situation where a firm produces such a small quantity of output relative to the total market supply that it has no power to influence the market price. As a result, the firm must take the market price as given and adjust its output level accordingly. This makes option B the correct answer. Option A is incorrect because firms that exhibit price-taking behavior cannot charge a higher price than the market price. Option C is incorrect because firms that take pricing behavior into their own hands are exhibiting price-making behavior, the opposite of price-taking behavior. Option D is incorrect because firms that can independently set price are also exhibiting price-making behavior.

Firms That Exhibit Price-Taking Behavior