who is price taker or not a price maker?
Dear Student,
The industry is the price maker and the firm is the price taker under the perfect competition.
A Firm is a producing unit which produces goods and services for sale to the customers.
An industry is an aggregate of all the firms producing the same commodity.
Example : Rajasthan cloth Mills is a firm manufacturing cotton. Likewise, an aggregate of all the other firms manufacturing cotton say, Laxmi Textile Mills, Banarasi Cloth Mills and other similar firms together as a whole producing cotton will constitute a cotton industry.
Under perfect competition, the price of a commodity is determined by the intersection of market forces of demand and supply of the whole industry. The demand and supply is the aggregate of total demand and total supply of all the other firms in the industry. No single firm can influence the price because their share in the total is insignificant.
Hence, the firm is called the price taker and the industry is called the price maker and the price so determined is called the equilibrium price.
Regards,
The industry is the price maker and the firm is the price taker under the perfect competition.
A Firm is a producing unit which produces goods and services for sale to the customers.
An industry is an aggregate of all the firms producing the same commodity.
Example : Rajasthan cloth Mills is a firm manufacturing cotton. Likewise, an aggregate of all the other firms manufacturing cotton say, Laxmi Textile Mills, Banarasi Cloth Mills and other similar firms together as a whole producing cotton will constitute a cotton industry.
Under perfect competition, the price of a commodity is determined by the intersection of market forces of demand and supply of the whole industry. The demand and supply is the aggregate of total demand and total supply of all the other firms in the industry. No single firm can influence the price because their share in the total is insignificant.
Hence, the firm is called the price taker and the industry is called the price maker and the price so determined is called the equilibrium price.
Regards,