Question

How is a seller under perfect competition a price taker and not a price maker? What is the relevance of the characteristic that there are 'large number of sellers' in this context?

Answer 1

Perfect competition is a form of the market in which there is a large number of buyers and sellers and where homogeneous product is sold at a uniform priceA price taker firm means that it has to accept the price as determined by the forces of market demand and market supply.Firm's demand curve under perfect competition is a horizontal straight line parallel to X-axis.Under perfect competition, AR is constant for a firm. Hence, AR = MR. Number of buyers and sellers: When there is a large number of buyers and sellers, it is a situation of perfect competition.