Which of the following statements is correct?
A)A competitive firm is a price maker and a monopoly is a price taker.
B)A competitive firm is a price taker and a monopoly is a price maker.
C)Both competitive firms and monopolies are price takers.
D)Both competitive firms and monopolies are price makers.

Question

Quizplus · Accepted Answer

In a competitive market, there are many small firms that do not have the power to influence the market price of their product or service. Therefore, they take the market price as given and adjust their quantity supplied accordingly. Hence, each competitive firm is a price taker. On the other hand, a monopoly has the power to influence the market price of its product or service because it is the only supplier in the market. Therefore, a monopoly is a price maker.

Which of the Following Statements Is Correct