Under perfect competition, the seller is a price taker. Under monopoly, he is the price maker. Explain.
Under perfect competition, the seller is a price taker. Under monopoly, he is the price maker. Explain.
Under perfect competition, there is a large number of sellers selling a homogenous product. Each seller sells so little that none of them can influence the price in the market. The price of a commodity under perfect competition is determined by the forces of demand and supply of the product alone. Every seller accepts the price as given/determined by the industry. No individual firm can influence this price. It only has to decide how much quantity of the commodity it wants to sell. It is because of this that the seller under perfect competition is a price taker.
On the other hand, under monopoly, there is a single seller of a product which has no close substitutes. The firm has substantial control over the supply. He is in a position to influence the price of the product. Demand curve facing a monopolist slopes downward which implies that if he charges a higher price, quantity demanded of its product will be less. If he fixes a lower price, quantity demanded will be more. He will fix a price which maximises his profits. Thus, under monopoly, the seller is a price maker and not a price taker.
Under perfect competition, there is a large number of sellers selling a homogenous product. Each seller sells so little that none of them can influence the price in the market. The price of a commodity under perfect competition is determined by the forces of demand and supply of the product alone. Every seller accepts the price as given/determined by the industry. No individual firm can influence this price. It only has to decide how much quantity of the commodity it wants to sell. It is because of this that the seller under perfect competition is a price taker.
On the other hand, under monopoly, there is a single seller of a product which has no close substitutes. The firm has substantial control over the supply. He is in a position to influence the price of the product. Demand curve facing a monopolist slopes downward which implies that if he charges a higher price, quantity demanded of its product will be less. If he fixes a lower price, quantity demanded will be more. He will fix a price which maximises his profits. Thus, under monopoly, the seller is a price maker and not a price taker.
