Firm is a price taker and …
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Yogita Ingle 4 years, 3 months ago
Firm. A firm is a single producing unit which produces goods and services for sale. Its main objective is to earn maximum profit.
Industry. An industry is an aggregate of all the firms producing the same product or interrelated product Alternatively, all the firms producing and selling the same or differentiated products of close substitutes are collectively known as an industry. For instance, firms manufacturing shoes will be collectively called shoe industry. Clearly a firm is a part of an industry.
Price determination. (Industry price-maker and firm price-taker). Under perfect competition, price of a commodity is determined by the equilibrium between market demand and market supply of the whole industry. So, the industry is called the price-maker. Here demand and supply represent total demand and total supply of industry. No individual firm can influence the price because its share in total supply is insignificant. Every firm has to accept the given price and adjust its level of output. It has no option but to sell the product at a price determined at industry level. If is because of this reason that firm is said to be price-taker and industry, the price-maker. This price is also called equilibrium price, because at this price quantity demanded is equal to quantity supplied. This can be illustrated with the help of the following demand and supply schedule and diagram of the industry:
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