Question

In a perfectly competitive market, the firm is a:

• A. Price maker
• B. Price taker
• C. Price discriminator
• D. None of the above

Hint:

Remember: \[ \text{Perfect Competition} \Rightarrow \text{Price Taker} \] \[ \text{Monopoly} \Rightarrow \text{Price Maker} \] This is one of the most frequently asked concepts in Microeconomics.

Answer 1

The Correct Option is B

Concept: Perfect Competition is a market structure characterized by a large number of buyers and sellers, homogeneous products, free entry and exit of firms, and perfect knowledge of market conditions. Since there are a very large number of firms producing identical products, no individual firm can influence the market price. The market price is determined by the interaction of overall market demand and market supply. Each individual firm has to accept the prevailing market price and therefore is called a Price Taker.

Step 1: Understand the meaning of perfect competition.
Under perfect competition:
• There are many buyers and sellers.
• Products are identical.
• Buyers have complete information.
• Firms can freely enter or leave the industry. Because of these features, competition among firms is extremely high.

Step 2: Understand why a firm cannot fix price.
Suppose the market price of a commodity is: \[ ₹100 \] If a firm tries to charge: \[ ₹110 \] buyers will immediately purchase from other firms selling the same product at: \[ ₹100 \] As a result, the firm loses all customers. Thus the firm cannot charge a higher price.

Step 3: Understand why a firm does not charge a lower price.
If the firm charges less than the market price, it suffers unnecessary loss because consumers are already willing to pay the market price. Therefore, charging a lower price is not beneficial.

Step 4: Determine the role of the firm.
Since the firm neither increases nor decreases the market price, it simply accepts the price determined by market forces. Hence: \[ \boxed{\text{Firm = Price Taker}} \] Therefore, \[ \boxed{\text{Price Taker}} \] Hence, \[ \boxed{(B)} \]