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Chapter 8: Q11 (page 211)

A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How 鈥渟mall鈥� is 鈥渟mall鈥�?

Short Answer

Expert verified

Single firm in perfect competition is small in regards to possessing insignificant share of market supply, price etc.

Step by step solution

01

Definition 

It is a market where large number of buyers and sellers exchange homogenous goods at uniform prices, with perfect information.

02

Explanation 

As the number of sellers are very large, they have small ie insignificant share in total market supply. So, they are small (insignificant) in regards to controlling price & have to take market price only.

Buyers have perfect information about similarity of goods. So, they are also indifferent among all sellers' goods. So, no firm can charge higher price and just sell as a small part under the huge market umbrella.

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Most popular questions from this chapter

Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.

What are the four basic assumptions of perfect competition? Explain in words what they imply for a perfectly competitive firm.

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Firms in a perfectly competitive market are said to be 鈥減rice takers鈥濃�攖hat is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

How does a perfectly competitive firm calculate total revenue?
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