Under which of the following forms of market structure does a firm has no control over the price of its product?

Question

Accepted Answer

The correct option is 4:
Perfect competition is the only market structure where a firm is a "price taker," meaning it has absolutely no control over the price of its product and must accept the market-determined price. This condition arises because perfect competition is characterized by four key features: a large number of buyers and sellers, homogeneous (identical) products, free entry and exit, and perfect knowledge. Since all products are identical and there are numerous small firms, if one firm tries to raise its price even slightly above the market price, all its customers will immediately switch to another firm selling the exact same product. Consequently, the firm faces a perfectly elastic demand curve at the market price, forcing it to be a price taker.

The incorrect option is 1:
Monopoly is characterized by a single seller, which gives the firm significant control over the market price. The monopolist is a "price maker" and faces a downward-sloping demand curve.

The incorrect option is 2:
Monopolistic competition involves many firms selling differentiated products. Because their products are unique (even if only slightly), firms retain some degree of control over their product's price, allowing them to act as price makers within a narrow range.

The incorrect option is 3:
Oligopoly is a market dominated by a few large firms. These firms possess substantial market power and strategic interactions, meaning they have considerable control over their prices, though this control is interdependent on the actions of their rivals.