Price is taken to be a "given" by an individual firm selling in a purely competitive market because
A) the firm's demand curve is downward-sloping.
B) there are no good substitutes for the firm's product.
C) each seller supplies a negligible fraction of the total market.
D) product differentiation is reinforced by extensive advertising.

Question

Quizplus · Accepted Answer

In a purely competitive market, each firm is a price taker and cannot influence the market price. The market price is determined by the interaction of market demand and supply, and each seller supplies a negligible fraction of the total market, meaning that no single firm has enough market power to affect the market price. Therefore, the price is taken as a given. The other options are not applicable to a pure competitive market, as firms in such a market sell homogeneous products, do not have downward-sloping demand curves, and do not engage in extensive advertising to differentiate their products.

Price Is Taken to Be a "Given" by an Individual