Multiple Choice
If a perfectly competitive firm is a price taker, then which of the following is true?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
In the context of perfect competition, a purely competitive seller is:
A
restricted to selling only differentiated products
B
a monopolist with significant market power
C
a price taker who cannot influence the market price
D
able to set prices above the market equilibrium
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many sellers, identical (homogeneous) products, free entry and exit, and perfect information.
Recognize that in perfect competition, each seller's product is a perfect substitute for another's, so products are not differentiated.
Recall that because there are many sellers offering identical products, no single seller can influence the market price; they must accept the market price as given.
Define a 'price taker' as a seller who accepts the market price and cannot set prices above it without losing all customers.
Conclude that a purely competitive seller is a price taker who cannot influence the market price, unlike a monopolist who has market power to set prices.
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