Question

A firm under perfect competition is called a price taker because ______.

Options

• It can increase price to earn more profit

• It can decrease price to sell more output

• It accepts the market price decided by demand and supply

• It fixes price in consultation with buyers

Answer 1

A firm under perfect competition is called a price taker because it accepts the market price decided by demand and supply.

Explanation:

Under perfect competition, the firm has to accept the market price determined by industry demand and supply, so it is a price taker with P = AR = MR constant.