Question

If perfectly competitive firms are price takers, and monopolistic, monopolistic competitive, and oligopolistic firms are price searchers, then it follows that three times as many firms in the real world are price searchers than are price takers. Do you agree or disagree? Explain your answer. (400 - 500 words)

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Answer 1

As we know that there are different market structure as perfect competition, monopoly, oligopoly and Monopolistic competition. Each and every market structure is different from the another.

Perfect competition is a market structure in which there are large number of firm's selling a homogeneous product. There is free entry and exit of firm's. The number of buyers and sellers is so large that no single seller or buyer is able to control the market price. The firm's and buyers are price takers and not the price makers. They have to accept the prices prevailing in the market. The price taking behavior is a an important feature of perfect competition. The price takers have no influence over the price . In perfect competition any price rise by a firm will effect the firm's demand for products. There will be potential loss of customers.

The three market structures such as Monopoly, oligopoly and Monopolistic competition is characterized by price searching or price making behavior. The monopoly is a market structure in which there is only one seller of the product with no close substitutes of the product. The monopoly has the great market power. They can set a higher price for it's product. They are searching for the market where price is higher. Monopolists influence the price by setting the price for it's product, they sell in the market.

Oligopoly is a market structure in which few firms are selling the products. Oligopolistist is also the price searcher. They are targeting their products in the markets where price is high. Oligopolistic firms are price searchers. They can raise the price of their good and still sell some, or all, of their product. ... If only a few firms account for a large percentage of sales, then the market is considered oligopolistic.

Monopolistic competition is a market structure in which large number of firm's are selling the differentiated products. In this market structure the firm's are Price searchers have some power to set their prices because they are selling differentiated products. They are facing a typically downward-sloping demand curve. To price searchers, single-pricing means that the price for all units must be lowered just to sell one more unit.

So,we can say that it's only perfect competition where price taking behavior is observed. The rest of the market structures are characterised by price making or price searching behavior.

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