Author Question: What does it mean to say that a perfectly competitive firm is a price taker? Can't a firm set any ... (Read 101 times)

bucstennis@aim.com · **on:** Jul 1, 2018

What does it mean to say that a perfectly competitive firm is a price taker? Can't a firm set any price it chooses?

What will be an ideal response?

Question 2

The derived demand curve for a good component will be more inelastic

A) the larger is the fraction of total cost going to this component.
B) the more inelastic is the demand curve for the final good.
C) the more elastic are the supply curves of cooperating factors.
D) the less essential is the component in question.

missalyssa26 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

A firm can set any price it chooses, but in a perfectly competitive industry, it will do no good to choose anything but the market price. At a higher price, no one will buy (since products are assumed to be identical) and at a lower price, you lose revenue without gaining sales, since you can presumably sell all you want to at the market price. Thus the firm is said to be a price taker.

Answer to Question 2

B