Price-taking firms, i.e., firms that operate in a perfectly competitive market, are said to be small relative to the market. Which of the following best describes this smallness?

The individual firm must have fewer than 10 employees.

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The individual firm faces a downward-slopping demand curve.

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The individual firm has assets of less than 20 lakh.

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The individual firm is unable to affect market price through its output decisions.

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Solution

The correct option is D The individual firm is unable to affect market price through its output decisions.
Perfect competition is a type of market where there are large number of buyers and sellers who deals in homogeneous product due to which no individual unit is able to influence the price of the product and the firms have to quote a single price that prevails in the market.

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