Question

Which of the following is a major difference between a competitive price searcher and a price taker?

  

A. Price takers need to compete through advertising because they cannot choose their own price, whereas competitive price searchers compete primarily through their pricing policies.

B. Price takers are exposed to competition because of low barriers to entry, whereas competitive price searchers are somewhat immune from competition due to relatively high barriers to entry.

C. Price takers can never earn economic profits, whereas competitive price searchers can earn economic profits in the short run.

D. Price takers produce identical goods, whereas competitive price searchers produce goods that are differentiated from the goods produced by their competitors.

Answer 1

Ans) Firms in competitive markets are price takers. Here there is no barrier to entry or exit. Sellers sell homogeneous products. In short run ,firms can earn positive, negative or zero economic profit.

Firms in monopolistic markets are competitive price searchers. Here sellers sell homogeneous but differentiated products. Barriers to entry and exit are low so there is increased competition. In short run firms can earn economic profit. They compete through advertisements.

Option d.