Question

Explain your reasoning and write legibly

Why are perfectly competitive firms price-takers? Choose one industry that is likely to be perfectly competitive and describe why. Which of the characteristics of perfect competition do you find to be least realistic and why?

Answer 1

Perfectly competitive firms are price takers, because they sell products that are non-distinguishable in nature and firm can enter the perfectly competitive market without any barrier and sell the same product . It makes the perfectly competitive firms to be devoid of the ability to set their own price and they become price takers only. Though there is no industry that can be considered as perfectly competitive in today’s business environment, but it is the industry of agricultural products such as corn, maze, wheat or pulse that can be considered as non-distinguished and constitute to be perfectly competitive industry. Here, many sellers are present and the market sets the price for them. There is no entry and exit barrier for the firms. So, it is a perfectly competitive industry.
The characteristic of non-distinguishable nature of the product is least realistic as product can be differentiated on the basis of quality, size, packaging also. For example, wheat can have different varieties and each variety will have unique qualities, taste and price. So, this feature is least realistic in nature.