# Why is a Firm in Perfect Competition a Price Taker?

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ECON 1312 Homework Assignment # 3Chapter 121.Why is a firm in perfect competition a price taker? ANSWER: Because a firm will sell only at the price that is decided by the market whenit is perfect competition so it is called a price takes.2.In perfect competition, what is the relationship between the demand for the firm’s output and the market demand? ANSWER: Perfect competition is the relationship between demand for the firms output and market demand3.In perfect competition, why is a firm’s marginal revenue curve also the demand curve for the firm’s output? ANSWER: A firm’s marginal revenue curve also the demand curve for the firm’s output because the firm’s marginal revenue is equals the market price.4.What decisions must a firm make to maximize profit? ANSWER: Firms must find out how to reduce production costs, how much to produce,and weather to enter the market or not.
5.Why does a firm in perfect competition produce the quantity at which marginal cost equals price? Answer: To prevent losses as they have no control over the prices, they produce the quantity where the marginal cost equals the price to have economic profit which is cost= selling price.6.What is the lowest price at which a firm produces an output? ANSWER: The lowest price that a firm produces is when the average total costs are equal to the market selling price7.What is the relationship between a firm’s supply curve, its marginal cost curve, and its average variable cost curve? ANSWER: Profit maximizing output relationship.8.How do we derive the short-run market supply curve in perfect competition? ANSWER: Quantity supplied by the market at a given price is the sum of the quantities supplied by all the firms in the market in that price.9.In perfect competition, when market demand increases, explain how the price of the good and the output and profit of each firm changes in the short-run. ANSWER: If market demand increases, the price of the goods rises, output and profit also rises.10.In perfect competition, when the market demand decreases, explain how the price of the good and the output and profit of each firm changes in the short-run. ANSWER: Price falls and firms decreases production as well as profit falls.

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