Chapter 11R, Problem 2MCQ

To determine

The correct option for given situation where reason for price taking firms is given.

Answer to Problem 2MCQ

Option d is correct answer.

Explanation of Solution

Explanation for correct option:

d.

Firm that refers to the perfect competition are the price taking firm because they produce and sell exactly identical product. The consumers exert pressure on the producer to sell similar products at similar prices as they possess all relevant information. Due to the intense competition firms are forced to take the prices. Therefore, option d is correct.

Explanation for incorrect options:

a.

The firm that is the price setter follows monopoly type market structure. The prices if sets by the government then it are not under perfect competition. Therefore, option a is incorrect.

b.

Firm that produces differentiated products may set their own prices to some extent due to the different quality, features, etc. of the product. Therefore, option b is incorrect.

c.

It happens in the oligopoly type competition where large firm sets the price for the industry. Perfect competition firms are usually price taker. Therefore, option c is incorrect.

e.

All consumers exert some forces to the prices due to which perfectly competitive firms are price takers. Therefore, option e is incorrect.

Economics Concept Introduction

Introduction: The price taking firms can reduce the cost of production if they produce the correct amount of products. In other words, profit can be maximized if quantity produced is at minimum cost.