Advertisements
Advertisements
Question
Assertion (A): Perfect competition is characterised by a firm being price-taker.
Reason (R): A firm produces a very small proportion of the total output of the industry.
Options
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation for Assertion (A).
Assertion (A) is true and Reason (R) is false.
Both Assertion (A) and Reason (R) are false.
Advertisements
Solution
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation for Assertion (A).
Explanation:
In a perfectly competitive market, there are a large number of firms, meaning each individual firm produces an insignificant, negligible share of the total industry output. Because its market share is so small, no single firm has the power to influence the market price by changing its own output, forcing it to accept the price determined by overall industry demand and supply.
