CA Foundation Exam > CA Foundation Questions > Price taker firms _________a)Do not advertise...
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Price taker firms _________
- a)Do not advertise their product because it misleads the customers
- b)Advertise their products to boost the level of demand
- c)Do not advertise but give gifts along with the sold items to attract customers
- d)Do not advertise because they can sell as much as they wish at the prevailing price
Correct answer is option 'D'. Can you explain this answer?
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Price taker firms _________a)Do not advertise their product because it...
Price taker firms do not advertise because they can sell as much as they wish at the prevailing price.
Price taker firms are firms that operate in a perfectly competitive market where they have no control over the market price. In a perfectly competitive market, there are numerous buyers and sellers, and no single firm has the ability to influence the market price. Therefore, price taker firms have to accept the prevailing market price for their product.
Reasons why price taker firms do not advertise:
1. No need to differentiate: In a perfectly competitive market, all firms sell homogenous products, meaning that there is no differentiation between the products of different firms. Since all firms are selling the same product at the same price, there is no need for price taker firms to advertise their product to differentiate it from competitors.
2. No control over price: Price taker firms have no control over the market price. The price is determined by the interaction of supply and demand forces in the market. Therefore, advertising efforts to increase demand would not be effective as the firm cannot control the price to accommodate the increased demand.
3. Focus on cost efficiency: Price taker firms typically focus on producing their products at the lowest cost possible to remain competitive in the market. They strive to achieve cost efficiency by optimizing their production processes and minimizing expenses. Advertising can be costly, and price taker firms may choose to allocate their resources towards improving cost efficiency rather than advertising.
4. Market transparency: In a perfectly competitive market, information about prices and products is readily available to buyers. Buyers can easily compare prices and make informed decisions. Therefore, advertising may not be necessary as buyers can easily find the product from price taker firms without the need for advertising.
In conclusion, price taker firms do not advertise because they are in a market where they have no control over the price and all firms sell homogenous products. Additionally, they focus on cost efficiency and operate in a market where price and product information is readily available to buyers. Therefore, advertising is not a viable strategy for price taker firms.
Price taker firms are firms that operate in a perfectly competitive market where they have no control over the market price. In a perfectly competitive market, there are numerous buyers and sellers, and no single firm has the ability to influence the market price. Therefore, price taker firms have to accept the prevailing market price for their product.
Reasons why price taker firms do not advertise:
1. No need to differentiate: In a perfectly competitive market, all firms sell homogenous products, meaning that there is no differentiation between the products of different firms. Since all firms are selling the same product at the same price, there is no need for price taker firms to advertise their product to differentiate it from competitors.
2. No control over price: Price taker firms have no control over the market price. The price is determined by the interaction of supply and demand forces in the market. Therefore, advertising efforts to increase demand would not be effective as the firm cannot control the price to accommodate the increased demand.
3. Focus on cost efficiency: Price taker firms typically focus on producing their products at the lowest cost possible to remain competitive in the market. They strive to achieve cost efficiency by optimizing their production processes and minimizing expenses. Advertising can be costly, and price taker firms may choose to allocate their resources towards improving cost efficiency rather than advertising.
4. Market transparency: In a perfectly competitive market, information about prices and products is readily available to buyers. Buyers can easily compare prices and make informed decisions. Therefore, advertising may not be necessary as buyers can easily find the product from price taker firms without the need for advertising.
In conclusion, price taker firms do not advertise because they are in a market where they have no control over the price and all firms sell homogenous products. Additionally, they focus on cost efficiency and operate in a market where price and product information is readily available to buyers. Therefore, advertising is not a viable strategy for price taker firms.
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Price taker firms _________a)Do not advertise their product because it misleads the customersb)Advertise their products to boost the level of demandc)Do not advertise but give gifts along with the sold items to attract customersd)Do not advertise because they can sell as much as they wish at the prevailing priceCorrect answer is option 'D'. Can you explain this answer?
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