A firm operating in a perfectly competitive market is a price taker because:

Question

Quizplus · Accepted Answer

A firm operating in a perfectly competitive market does not have the ability to influence the price of the product as it has no market power. The market price is determined by the forces of supply and demand, and the firm has to accept the prevailing market price if it wants to sell its products. This makes the firm a price taker. Choice A is incorrect because having a significant market share implies some degree of market power, which contradicts the assumption of a perfectly competitive market. Choice B is incorrect because in a perfectly competitive market, all firms sell identical products. Choice C is incorrect because setting a price higher than the market price would lead to a loss of customers, which is not sustainable in the long run for a perfectly competitive market.

A Firm Operating in a Perfectly Competitive Market Is a Price