The market price of a good is Rs 50. A price-taking firm thinks about charging Rs 52 or Rs 48 instead. Which of the following is correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → It sells nothing at Rs 52 and gains nothing at Rs 48, so it charges Rs 50.
A price-taking firm can sell as much as it wants at Rs 50. Above Rs 50 it sells nothing, and going below Rs 50 brings it no extra sales.
Option (1) It keeps all its buyers at Rs 52, as they have nowhere else to go. — Incorrect. Buyers know the market price and can buy the same good from many other firms. So it loses all of them.
Option (2) It keeps some buyers at Rs 52 and sells more at Rs 48, so it charges Rs 48. — Incorrect. It keeps no buyers at Rs 52.
Option (3) It sells nothing at Rs 52 and sells more at Rs 48, so it charges Rs 48. — Incorrect. At Rs 50 it can already sell all it wants, so a lower price only cuts its revenue.
Option (4) It sells nothing at Rs 52 and gains nothing at Rs 48, so it charges Rs 50. — Correct. The price it sets is equal to the market price.
NCERT (2026-27): “4.1 Perfect Competition: Defining Features … A price-taking firm believes that if it sets a price above the market price, it will be unable to sell any quantity of the good that it produces. On the other hand, should the set price be less than or equal to the market price, the firm can sell as many units of the good as it wants to sell.” “4.2 Revenue We have indicated that in a perfectly competitive market, a firm believes that it can sell as many units of the good as it wants by setting a price less than or equal to the market price. But, if this is the case, surely there is no reason to set a price lower than the market price. In other words, should the firm desire to sell some amount of the good, the price that it sets is exactly equal to the market price.” |