If a perfectly competitive firm is a price taker, then which of the following is true?

• A. It can set its own price above the market price to increase profits.
• B. It can restrict output to raise the market price.
• C. It cannot influence the market price and must accept the price determined by market supply and demand.
• D. It faces a downward-sloping demand curve for its product.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a perfectly competitive firm: such a firm is a price taker, meaning it has no power to influence the market price because there are many sellers offering identical products.
2. Recall that in perfect competition, the market price is determined by the intersection of overall market supply and demand, not by any individual firm.
3. Recognize that because the firm is a price taker, it must accept the market price as given and cannot set its own price above or below this level to increase profits.
4. Note that the firm cannot restrict output to raise the market price because its individual production is too small to affect the total market supply.
5. Understand that the demand curve facing a perfectly competitive firm is perfectly elastic (horizontal) at the market price, not downward-sloping, reflecting that the firm can sell any quantity at the market price but nothing at a higher price.