Home › AP Microeconomics › Economics › Perfect Competition › The source calls a perfectly competitive firm a …
The source calls a perfectly competitive firm a 'price taker.' What does this term mean?
AThe firm can charge any price it wants without losing sales
BThe firm takes a fixed percentage of the market price as profit
CThe firm must accept the prevailing equilibrium market price for its product
DThe firm sets the market price for all its competitors to follow
Answer & Solution
Correct answer: C. The firm must accept the prevailing equilibrium market price for its product
1. A price taker is a firm that cannot influence the market price on its own.
2. Competitive pressure from many other firms selling identical products forces it to accept the price the market has already set.
3. This is the opposite of setting the market price for others to follow.
4. It also cannot charge whatever it likes, since raising price even slightly costs it all its sales.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.1 | Perfect Competition and Why It Matters_
Related questions
Between 1997 and 2014, the source reports that North Dakota corn acreage more than doubledAccording to the source, do market structures such as monopoly, monopolistic competition, The source cautions that calling perfect competition 'efficient' should be taken with a grSuppose firms in the wholesale flower market instead produce more than the allocatively efIn the wholesale flower market example, suppose firms produce a smaller quantity than the How does the source define allocative efficiency in a perfectly competitive market?How does the source define productive efficiency?According to the source, how does the long-run supply curve differ across the three indust