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Short answer: firm is a price-taker because there are numerous firms and consumers which will defeat any price change they make.
Long answer: An assumption of perfect competition is that prices remain at the following equilibrium:
Price = Marginal cost = Demand
In this situation, the firm is a 'price-taker' because it has no ability to change the price of the good itself (and thus increase its profit margin). This occurs because there are many, equally good firms which will simply keep their price lower if any firm attempts to raise the price. In general, because consumers will buy from the lowest priced-supplier, firms will continually lower their price to make the most profit until the point where P = MC (this being where they can no longer profit from lowering their price). Therefore, firms have no power to make the price because any change they make will simply be defeated by enemy firms or consumers and thus they 'take' whatever price there is.
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Distinguish perfect competition and imperfect competition?
In imperfect competition the producer is the price maker. Whereas in perfect the producer is the price taker meaning there are many producers and no one can influence the price.
Explain in detail with suitable examples the imperfect competition and perfect competition?
In imperfect competition the producer is the price maker whereas in perfect the producer is the price taker. In imperfect no new competitors enter the industries hence super normal profits will continue to be realised, unlike in perfect comp
A firm under a perfact competition is a price-taker not price-maker with examples?
it is a price taker because under perfect competition,price is determined by the market(through price mechanism:demand and supply) and not producer.this is because there are so many producers of the same product and all have the perfect knowledge of the market and there is only one buyer of that product,so no body can decide the price of the commodity on behalf of others.thats why a firm under perfect competition is a price taker and not a price maker. As part of the industry, the firm has to simply charge price determined by the industry. If the firm charges more price, it will lose sales and if it charges less price it will incur losses. The typical example of perfect competition is agriculture. The products are indistinguishable. There are many potential suppliers. This makes the farmer a price taker; if he or she prices the product higher than the market price, he or she will not make any sales or make fewer sales, thus incurring loss. Thus the farmer has to go with the price determined by the industry in order to survive
Assumptions of perfect competition?
this is a technical term which is used for no firm and consumer can directly affect the market price. Assumptions are: large no's of buyers and sellers. price taker price minimum perfect information homogeneous product perfectly elastics free entry or exits no transportation cost.
What is the Difference Between Pure Competition and perfect Competition?
In imperfect competition the producer is the price maker whereas in perfect the producer is the price taker. In imperfect no new competitors enter the industries hence super normal profits will continue to be realised, unlike in perfect comp
Distinguish perfect competition and imperfect competition?
In imperfect competition the producer is the price maker. Whereas in perfect the producer is the price taker meaning there are many producers and no one can influence the price.
Explain in detail with suitable examples the imperfect competition and perfect competition?
In imperfect competition the producer is the price maker whereas in perfect the producer is the price taker. In imperfect no new competitors enter the industries hence super normal profits will continue to be realised, unlike in perfect comp
A firm under a perfact competition is a price-taker not price-maker with examples?
it is a price taker because under perfect competition,price is determined by the market(through price mechanism:demand and supply) and not producer.this is because there are so many producers of the same product and all have the perfect knowledge of the market and there is only one buyer of that product,so no body can decide the price of the commodity on behalf of others.thats why a firm under perfect competition is a price taker and not a price maker. As part of the industry, the firm has to simply charge price determined by the industry. If the firm charges more price, it will lose sales and if it charges less price it will incur losses. The typical example of perfect competition is agriculture. The products are indistinguishable. There are many potential suppliers. This makes the farmer a price taker; if he or she prices the product higher than the market price, he or she will not make any sales or make fewer sales, thus incurring loss. Thus the farmer has to go with the price determined by the industry in order to survive
Assumptions of perfect competition?
this is a technical term which is used for no firm and consumer can directly affect the market price. Assumptions are: large no's of buyers and sellers. price taker price minimum perfect information homogeneous product perfectly elastics free entry or exits no transportation cost.
What is the Difference Between Pure Competition and perfect Competition?
In imperfect competition the producer is the price maker whereas in perfect the producer is the price taker. In imperfect no new competitors enter the industries hence super normal profits will continue to be realised, unlike in perfect comp
Why a firm is a price taker and not a price maker under perfect market conditions?
the firm is too small and has too much cometition which offers the same product. if it charged more than ist cost Price the competition would take the customer away. becoming a pricemaker needs a local, innovational, governmental or resource based monopoly. that's not given under perfect marked condition.
Why is the price elasticity of the demand curve of an individual firm in perfect competition is always infinite?
Under perfect competition, the industry is defied as a group of firms producing a homogeneous product. The technical characteristics of the product as well as the services associated with its sale and delivery are identical. Hence there is no way in which a buyer could differentiate among the products of different firms. If the product were differentiated the firm would have some discretion in setting its price. So the firm is a price taker and its demand curve is infinitely elastic.
Does monopolists differ from perfect competitors because monopolists makes a profit?
Not because of that reason but rather a result of the different characteristic of the two market structures. Basis of difference : MONOPOLY PERFECT COMPETITION 1) Number of producer 1 Many 2) Knowledge imperfect perfect 3) Price setter/taker setter taker 4) Nature of goods no substitute/ imperfect sub. homogeneous 5) Barriers to entry very high no 5) Factor mobility Factor immobility perfectly mobile 6) Profits in LR supernormal/normal normal
What is profit maximization in perfect competion?
Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry.WHAT IS A PERFECT COMPETITION?solution - It is that form of market where are very large numbers of buyers and sellers and same product sold with fixed price.Now I explain that How in perfect comp. very large numbers of buyers and sellers, fixed price and same product sold.....A perfect competition is the competition of product sold means If buyer wants to sell a product (ex. maggie), so he is not a single seller that he sells that product (maggie), there are many sellers that sells the same product... so a perfect competition found If the product sells to huge numbers of customers means If customers like product so much .. so every seller wants to sell the same product(ie ex. maggie).So thats why in perfect competition a huge numbers of sellers and a huge numbers of customers.Now i take example..Imagine a market in which every seller has maggie product.. so if customer wants to buy a maggie.. he has many option to buy a maggie to that seller. If one seller wants to attract the customer by lowering the price ie 10 to 8, so he will bring losses in the firm because if he purchase the product in Rs8 so how he sell the product in that rate. And if he wishes to high the price, so you know customers has many option that i above explained.. so same price prevails in the market or inother words a firm is price taker and industry is price maker.
Why are Firms competing within a Perfectly Competitive market considered Price Takers?
Short answer: firm is a price-taker because there are numerous firms and consumers which will defeat any price change they make.Long answer: An assumption of perfect competition is that prices remain at the following equilibrium:Price = Marginal cost = DemandIn this situation, the firm is a 'price-taker' because it has no ability to change the price of the good itself (and thus increase its profit margin). This occurs because there are many, equally good firms which will simply keep their price lower if any firm attempts to raise the price. In general, because consumers will buy from the lowest priced-supplier, firms will continually lower their price to make the most profit until the point where P = MC (this being where they can no longer profit from lowering their price). Therefore, firms have no power to make the price because any change they make will simply be defeated by enemy firms or consumers and thus they 'take' whatever price there is.
Explain the following statement with suitable examples a firm under a perfect competition is a price-taker and not a price-maker?
In perfect competition there are no barriers to entering the market as a firm. This also says that for this particular market that there is on differentiation of products between firms .This implies that fixed cost costs and total costs are zero and the only costs that matter are marginal costs. This makes the entry and exit for a market without costs and therefore any firm can take a share of the market. This makes it so if a particular firm wants to charge higher than the market price no consumer will buy their product because they have a plethora of other sources that charge for a lower price for the same exact product. Therefore it must take the price of the market or else it will sell no goods. There is also no reason for the firm to lower its price either because it can sell as much as it wants in the competitive market at a higher price.
Explain why perfect competition may result in allocative efficiency?
Because in a perfectly competitive market, resources are used perfectly efficiently (excuse the grammar). A purely competitive market has very many peculiar features. One of them is that every firm is a price taker. This means they cannot set the price, so they must be as efficient as the most efficient competitor or they will be out-priced. This results in inefficient firms going out of business and only the most efficient staying alive.
