Answer to Question #256048 in Economics of Enterprise for Nelly

Question

A perfectly competitive firm is referred to as a? a. Price giver b.price taker c.price maker d.price cutter e.price setter

Answer 1

Answer: b-price taker

Explanation

A perfectly competitive firm is referred to as a price taker because of the characteristics of the market. A large number of sellers and homogeneous products are the two important features of this market. The presence of a large number of producers forces competitive firms to accept the prevailing equilibrium price in the market. If one of the firms raises the price, he will lose all of its sales. In addition to this, competitive firms are selling the same product. That is there is nothing that makes the product of the particular firm special. All buyers know the price they have to pay for this product.