Question

Under perfect competition, how is the price faced by an individual firm best described?

Options

• The firm can freely increase or decrease its own price

• The firm is a price maker and sets its own price

• The firm is a price taker and accepts the market price

• The firm’s price is always higher than the industry price

Answer 1

The firm is a price taker and accepts the market price

Explanation:

In perfect competition, the industry sets the equilibrium price, and each firm must accept this price; hence, the firm is a price taker and faces a horizontal demand (AR = MR) curve at that price.