Question

A perfectly competitive firm is a price taker because:

It has a relatively large degree of control over price

It has been able to differentiate its product from others in the industry

There are a small number of firms in the industry

It produces a very large percentage of total output

It produces a very small percentage of total output

Answer 1

It has a relatively large degree of control over their price.
All the firms in the competitive firm accept the equilibrium price and sell their goods at that price. If anyone increases the price level will exit from the market. The equilibrium price is determined through the condition of MC equates MR and the MC cut MR from below. The price control in the market make a pressure on the firms to accept the price otherwise they will lose the market. There is a large number of firms in the market, so the rise in quantity will not affect the overall quantity in the industry. There is high level competition seen in the market between the existing firms. There is free entry and exit for the firms in this type of market structure. In short run the firms acquire abnormal profit through reducing their average cost of production. Firms will respond to profit through expanding their production in the long run. The losing firms will exit from the firm freely and the profit earning firms will remain in the firm with a confidence to increase their production.