Question

In: Economics

The market demand curve of a particular good is downward-sloping. Based on this information, which of...

The market demand curve of a particular good is downward-sloping. Based on this information, which of the following statements is correct regarding a price-taking firm producing that good? (Justify the answer)

a) The demand curve faced by the firm is downward sloping

b) The firm chooses the price that equals its marginal cost

c) The firm chooses its output such that the marginal cost equals the price

d) A price-taking firm cannot be profit-maximising

Solutions

Expert Solution

Option C.

  • A price taking firm is a firm which cannot set it's own prices or cannot influence the market prices individually and hence It can only sell its outputs at a market price.
  • Therefore the face a downward facing demand curve for a particular good.
  • As they are price takers, each firm chooses it's output such that the marginal cost equals the price.

Rahul Sunny answered 2 years ago
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