Explain why in a perfectly competitive market, the firm is a price taker. Why can't the firm choose...

Question

Explain why in a perfectly competitive market, the firm is a price taker. Why can't the firm choose the price at which it sells its good? (3 points)
2) Leskeista produces table lamps in the perfectly competitive table lamp market.
a) Fill in the missing values in the following table. (8 points)
Output per week Fixed Cost (FC) Variable. Cost (VC) Total. Cost (TC) Marginal Cost (MC) Average total cost (ATC) Average variable cost (AVC XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX
b) Suppose the market price of table lamp is $99. How many table lamps will Leskeista produce, what price will she charge, and how much profit (or loss) will she make? (3 points)
c) if next week, the market price of table lamp drops to $40, how many table lamps will Leskeista produce, what price will she charge, and how much profit (or loss) will she make? (3 points)
d) Should Leskeista shut down its business in the short-run when the market price of table lamp stays $40? Explain your answer. (3 points)

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David · Accepted Answer

Answer to 1): 
Perfectly competitive market is a market characterized by large number of buyers, large numbers 
of sellers with no one having enough market power of influencing market price, products are 
homogeneous and there is perfect knowledge about the market conditions among the participants 
of the market. In this market, price is determined by the market and each firm accepts this price 
as given i.e. each firm behaves like price taker.  
As the definition suggest, in this market each firm has very small share in the market, so it 
cannot affect the market price; if it tries to charge higher price,

Explain why in a perfectly competitive market, the firm is a price taker. Why can't the firm choose the price at which it sells its good? (3 points) 2) Leskeista produces table lamps in the perfectly...

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