Which of the following explains why a perfectly competitive firm is a price taker quizlet?

perfect competition

market structure characterized by many buyers and sellers, identical (homogeneous) product, and easy market entry and exit.

Price takers

a perfectly competitive firm that takes the price it is given by the intersection of the market demand and market supply curves.

What are the characteristics of a firm in a perfectly competitive market?

-many buyers and sellers
-identical (homogeneous) product
-Easy market entry and exit

What is a price taker?

In markets with so many buyers and sellers, neither buyers nor sellers have any control over price in perfect competition. They must take the going price and hence are called price takers.

Given examples of market demand curves, differentiate between individual firm demand and market demand.

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Given examples of price mechanisms, determine which establish an individual perfectly competitive firm's market price.

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Given examples of specific changes in market demand, determine the effects on individual firm's market prices.

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Why won't individual price takers raise or lower their prices?

The individual seller won't sell at a higher price than the going price, because buyers can purchase the same good from someone else at the going price. They won't sell below the going price, because they are so small relative to the market that they can sell all they want at the going price.

Will the position of individual price takers' demand curves change when market price changes?

The position of the individual firm's demand curve varies directly with the market price.

Which of the following is true about perfect competition?

A. Because perfectly competitive markets have many buyers and sellers, each firm is so small in relation to the industry that its production decisions have no practical impact on the market.

B. All of the above are true about perfect competition.

C. Since a perfectly competitive seller can sell all she wants at the market price, her firm's demand curve is horizontal at the market price over the entire range of output that she could possibly produce.

D. Because consumers believe that all firms in a perfectly competitive market sell identical (homogeneous) products, the products of all the firms are perfect substitutes.

E. Perfectly competitive markets have easy entry and exit.

B. All of the above are true about perfect competition.

If the market demand curve in a perfectly competitive industry shifts right, the demand curve for each existing firm will:

A. shift up.

B. shift down.

C. shift right.

D. shift left.

E. do both a. and c.

A. shift up.

Perfect competition is the term used to describe:

A. an industry in which firms are price takers and compete for market share by varying the qualitative characteristics of products.

B. an industry in which a few price-taking firms produce identical products.

C. an industry in which numerous price-taking firms produce identical products.

D. an industry in which numerous firms are price makers and produce identical products.

C. an industry in which numerous price-taking firms produce identical products.

Perfect competition is a term used to describe a market structure with numerous price taking firms selling identical products to many buyers, plus easy entry and exit.

Since there are a large number of sellers all selling a homogeneous product, each individual firm has no influence on the market price, and has no price-setting power, so the firm is a price-taker. Regardless of how much output the firm sells, the market price is still the same for all firms and no individual seller is large enough to control the market price.

The perfectly competitive model assumes that:

A. individual sellers can influence the market price.

B. firms can enter and exit the industry with relative ease.

C. firms compete by varying a product's quality rather than a product's price.

D. sellers can increase their total revenue by raising prices.

B. firms can enter and exit the industry with relative ease.

Which of the following best resembles a perfectly competitive market?

A. the stock market
B. the used car industry
C. the steel industry
D. the book publishing industry

A. the stock market

A perfectly competitive firm faces a demand curve that is:

A. vertical and perfectly inelastic.

B. horizontal and perfectly inelastic.

C. horizontal and perfectly elastic.

D. vertical and perfectly elastic.

C. horizontal and perfectly elastic.

A perfectly competitive firm faces a demand curve that is horizontal and perfectly elastic.

For a firm that operates in a perfectly competitive market, the firm specific demand curve is horizontal. Such a firm can sell as much as it wants at the market price; if it charges a higher price, it would sell nothing; and it would not charge less because it could sell any amount at the market price.

In the case of perfect elasticity, the price elasticity is infinity and the demand curve is horizontal, implying that only one price is feasible.

The horizontal demand curve facing an individual firm in a perfectly competitive market:

A. violates the law of demand, which states that demand curves slope downward.

B. is a reflection of the inelastic demand for its product.

C. is maintained only with the help of high barriers to entry.

D. is a reflection of the firm's small size relative to the total market.

D. is a reflection of the firm's small size relative to the total market.

A competitive firm facing a perfectly elastic demand curve can:

A. sell all of its output at any price it chooses.

B. sell more output only by reducing its price.

C. sell all of its output at the market price.

D. increase price without losing any sales.

C. sell all of its output at the market price.

In a perfectly competitive industry, influence over price is exerted by:

A. individual buyers.

B. the largest firms.

C. the forces of supply and demand.

D. individual sellers.

C. the forces of supply and demand.

A firm facing a horizontal demand curve:

A. cannot affect the price it receives for its output.

B. is unlikely to price its goods below market price.

C. faces a perfectly elastic demand curve for its product.

D. is characterized by all of the above.

D. is characterized by all of the above.

Statement A is true: A firm facing a horizontal demand curve cannot affect the price it receives for its output.

Statement B is true: A firm facing a horizontal demand curve is unlikely to price its goods below market price.

Statement C is true: A firm facing a horizontal demand curve faces a perfectly elastic demand curve for its product.

A perfectly competitive firm is a:

A. price leader.
B. price maker.
C. price giver.
D. price taker.

D. price taker.

Which of the following is false of perfectly competitive firms?

A. Because perfectly competitive firms are price takers, each firm's demand curve remains unchanged even when the market price changes.

B. The perfectly competitive model does not require any knowledge on the part of individual buyers and sellers about market demand and supply curves.

C. In a perfectly competitive market, marginal revenue is constant and equal to the market price.

D. A perfectly competitive market is approximated most closely in highly organized markets for securities and agricultural commodities.

A. Because perfectly competitive firms are price takers, each firm's demand curve remains unchanged even when the market price changes.

Which of the following is a characteristic of perfect competition?

A. None of the other answers is correct.

B. substantial barriers to entry

C. few sellers

D. each firm has significant control over the market

E. homogeneous products

E. homogeneous products

Which of the following is true of perfectly competitive firms?

A. It is difficult for entrepreneurs to become suppliers of a product in a perfectly competitive market structure.

B. A perfectly competitive firm has a perfectly elastic supply curve.

C. In a perfectly competitive market, an individual seller can change his price and it will not alter the output he sells.

D. All of the above are true.

E. None of the above are true.

E. None of the above are true.

A perfectly competitive firm has no influence over price because:

A. it is unaware of the demand curve it faces.

B. its output is insignificant relative to the market as a whole.

C. antitrust laws constrain perfectly competitive firms.

D. consumers establish the prices of products.

B. its output is insignificant relative to the market as a whole.

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