CA Foundation Exam > CA Foundation Questions > Price taker firmsa)advertise to increase the ...
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Price taker firms
- a)advertise to increase the demand for their products
- b)do not advertise because most advertising is harmful for the society
- c)do not advertise because they can sell as much as they want at the current price
- d)who advertise will get more profits than those who do not
Correct answer is option 'C'. Can you explain this answer?
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Price taker firmsa)advertise to increase the demand for their products...
Understanding Price Taker Firms
Price taker firms operate in perfectly competitive markets, where they have no influence over the market price of their products. This leads to specific characteristics regarding their behavior and decision-making.
Market Dynamics
- Price Acceptance: Price taker firms accept the market price as given. They do not have the power to influence prices because there are many competitors offering identical products.
- Demand Elasticity: These firms face a perfectly elastic demand curve, meaning they can sell any quantity of their product at the prevailing market price but cannot sell anything at a higher price.
Advertising Implications
- No Need for Advertising: Since price taker firms can sell as much as they want at the current market price without needing to attract more customers, they typically do not invest in advertising.
- Profit Maximization: The primary goal of price taker firms is to maximize profits. Since they can sell their product at the existing price, there is little incentive to advertise, as it does not change their selling price or the demand they can capture.
Conclusion
In summary, option "C" is correct because price taker firms do not advertise as they can sell any quantity of their product at the current market price without needing to create additional demand. Their market position allows them to focus on maintaining efficiency and reducing costs rather than investing in advertising efforts.
Price taker firms operate in perfectly competitive markets, where they have no influence over the market price of their products. This leads to specific characteristics regarding their behavior and decision-making.
Market Dynamics
- Price Acceptance: Price taker firms accept the market price as given. They do not have the power to influence prices because there are many competitors offering identical products.
- Demand Elasticity: These firms face a perfectly elastic demand curve, meaning they can sell any quantity of their product at the prevailing market price but cannot sell anything at a higher price.
Advertising Implications
- No Need for Advertising: Since price taker firms can sell as much as they want at the current market price without needing to attract more customers, they typically do not invest in advertising.
- Profit Maximization: The primary goal of price taker firms is to maximize profits. Since they can sell their product at the existing price, there is little incentive to advertise, as it does not change their selling price or the demand they can capture.
Conclusion
In summary, option "C" is correct because price taker firms do not advertise as they can sell any quantity of their product at the current market price without needing to create additional demand. Their market position allows them to focus on maintaining efficiency and reducing costs rather than investing in advertising efforts.
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Price taker firmsa)advertise to increase the demand for their productsb)do not advertise because most advertising is harmful for the societyc)do not advertise because they can sell as much as they want at the current priced)who advertise will get more profits than those who do notCorrect answer is option 'C'. Can you explain this answer?
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