Answer:
Firm 'X' is a price taker because of the following reasons: (i) A firm under perfect competition is contributing such a small fragment to the market supply that total supply schedule remains unaffected by any change in individual firm's supply. (ii) All firms are selling homogeneous product. Accordingly, even partial control over price is not possible. If any firm tries to fix its own price, it won't succeed. Higher price would drive the buyers to a large number of other sellers. Lower price would bring so many buyers to a firm that it cannot cope with the demand. (iii) Moreover, buyers under perfect competition are fully aware about the market conditions and therefore the firms cannot charge a higher price from the buyers even on the grounds of buyer's ignorance. Therefore, in perfect competition, price of a commodity is determined by the equilibrium between demand and supply of the whole industry. Demand and supply represent total demand and total supply of the industry respectively. Explanation Through an Imaginary Schedule
Industry Firm Price Demand Supply Price Quantity TR AR MR 1 50 10 3 1 3 3 3 2 40 20 3 2 6 3 3 3 30 30 3 3 9 3 3 4 20 40 3 4 12 3 3 5 10 50 3 5 15 3 3 
In the above figure, market forces of equilibrium demand and equilibrium supply have determined the equilibrium point E. At E, the price is Rs.3. Therefore, every individual firm can sell its commodity at this price of Rs.3 only, whatever quantity it may sell. Hence, price fixed by industry is Rs.3 which has to be followed by every individual firm.
You need to login to perform this action.
You will be redirected in
3 sec
