Question

Which of the following statements best reflects a price-taking firm? a The firm has an incentive to charge less than the market price to earn higher revenue b If the firm were to charge more than the going price, it would sell none of its goods c The firm can sell only a limited amount of output at the market price befo

Answer 1

Answer:

b

Explanation:

A price taking firm is a firm that must sell at the price determined by the forces of demand and supply. This is typical of firms that in industries that sell identical products.

If the firm charges a price higher than equilibrium price, customers would go to other suppliers and the firm would sell known of its product.

There would be no incentive for a firm to sell below equilibrium price because it would be earning losses.

An example of an industry characterised by price taking firms are perfectly competitive industries.

For example, a farmer selling oranges is an example of a price taking firm