Question

Which statement is the best description of a price‑taker as it pertains to perfect competition?

Answer 1

Answer:

The correct answer is letter "A": Mary Beth grows cotton. She finds that she can always sell her entire crop at the market price. However, if she asks a price that is even slightly higher she cannot sell any of her cotton.

Explanation:

Perfect Competition is a market where competition is at the highest degree possible. Perfect competitive markets have the following characteristics:

1. All companies sell the same goods or services.  
2. All companies are price takers.  
3. All firms have relatively small market shares.  
4. Buyers have full product and price information.  
5. The industry is characterized by low or no barriers to entry and exit of the industry.

Thus, in Mary Beth's case, she cannot ask for a different price than the one of the market because in a perfectly competitive market it is controlled by supply and demand. Companies cannot set the price.