A firm in perfect competition is a price taker because
A) there are no good substitutes for its good.
B) many other firms produce identical products.
C) it is very large.
D) its demand curves are downward sloping.
E) its demand curve is vertical at the profit-maximizing quantity.

Question

Quizplus · Accepted Answer

In perfect competition, there are many firms producing identical products, and each firm is a small player in the market. As a result, no single firm has the power to influence the market price, and hence, each firm takes the market price as given and adjusts its output accordingly. Therefore, a firm in perfect competition is a price taker, as it has no control over the market price.

A Firm in Perfect Competition Is a Price Taker Because