Question

In: Economics

what it means by price taker firm

what it means by price taker firm

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Expert Solution

Price taker firm are firm operating under perfect competition and they accept the price prevailing in the market. The profit maximizing level of price taker firm is achieved when price is equal to marginal cost.

A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. Due to market competition, most producers are also price-takers. Only under conditions of monopoly or monopsony do we find price-making.Market makers set prices in financial products like stocks. But market markers are also in competition with one another to trade.

in a competitive industry, there are no barriers to entry and each company holds a relatively small market share. Therefore, the producers of goods are forced to “take” the prevailing market price to maintain their market share and remain competitive. Likewise, price takers individuals are investors who are forced to “take” the market price of a share because their individual trades are not enough to influence the market price.


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