Which of the following is not a characteristic of a "price taker" ?

Question

Accepted Answer

The correct option is 3: AR > MR.

A "price taker" operates in a perfectly competitive market. In such a market structure, individual firms are so small relative to the entire market that they must accept the prevailing market price for their product. They can sell any quantity at this fixed market price, but they cannot influence the price itself. This fundamental assumption leads to several key relationships for the firm's revenue curves.

The incorrect option is 1 (Marginal Revenue = Price): In perfect competition, since the price is constant regardless of output, the Marginal Revenue (MR)—the additional revenue from selling one more unit—is always equal to the price (P).
The incorrect option is 2 (AR = Price): Average Revenue (AR) is calculated as Total Revenue (TR) divided by Quantity (Q), which is (P x Q) / Q = P. Therefore, in a perfectly competitive market, Average Revenue is equal to the Price.
The incorrect option is 4 (TR = P x Q): Total Revenue (TR) is always calculated as the product of Price (P) and the Quantity (Q) sold, a fundamental accounting identity true for all market structures, including perfect competition.