Asked by Enrique Cuevas on Jul 11, 2024
Verified
Which of the following is correct?
A) Both purely competitive and monopolistic firms are "price takers."
B) Both purely competitive and monopolistic firms are "price makers."
C) A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D) A purely competitive firm is a "price maker," while a monopolist is a "price taker."
Price Makers
Firms that possess the power to set the price of a good or service because of a lack of competition or the unique nature of the product.
Purely Competitive
A market structure characterized by a large number of small firms, free entry and exit, homogeneity of products, and perfect information that leads to the price being dictated by the market.
Monopolistic Firms
Firms operating in a market structure with many competitors that sell differentiated products.
- Recognize the differences in market power and pricing strategies between perfectly competitive firms and monopolies.
Verified Answer
SB
Sara Beth BryanJul 18, 2024
Final Answer :
C
Explanation :
A purely competitive firm is a "price taker" because they have no control over the market price and must accept whatever the market dictates. A monopolist, on the other hand, is a "price maker" because they have control over the market price to some extent, as they are the sole supplier of the good/service. Therefore, both purely competitive and monopolistic firms are not "price makers."
Learning Objectives
- Recognize the differences in market power and pricing strategies between perfectly competitive firms and monopolies.