Answer to Question #221249 in Microeconomics for yummie

Question

1.    In a competitive market individual firms take as given

a.     the level of output they produce.

b.    the price they receive for their output.

c.     both the level of output they produce and the price they receive.

d.    neither the level of output they produce nor the price they receive.

Answer 1

There are a large number of sellers and a large number of buyers in the competitive market who have perfect knowledge. The firms or sellers in the perfectly competitive market sell similar or homogenous products. The equilibrium price is determined by the industry through the free play of market forces of demand and supply. The individual firm or seller has no control in the market because the competitive price is equal to the marginal cost of production but individual firms can sell all they want at the equilibrium market price and if any firm will charge above the market price then it would not be able to sell any quantity so, in a competitive market individual firms take the prices as given and sell as much quantity as they like at market price.

Therefore, option (b.) “the price they receive for their output.” is correct.