why is the firm under perfect competition a price taker

Dear student,

In a perfect competition there are large number of buyers and sellers. The price under perfect competition is determined by the forces of demand and supply. As the number of sellers are so large, a firm is just a small part of the industry, so it cannot influence the price of the product.
 All the firms produce identical goods, so no firm has any basis to charge higher prices for its product. An individual firm has to accept the price prevailing in the market, it can only decide about the quantity of output which it has to produce. 
Therefore, a firm under perfect market is a price taker.


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In perfect market conditions (also called perfect competition) a firm is a price taker because other firms can enter the market easily and produce a product that is indistinguishable from every other firm’s product.  This makes it impossible for any firm to set its own prices.

A price taker is a firm that cannot have any say in setting its own prices.  A price taker simply has to accept the market price.  This is in contrast to a price maker, which can have an influence over the price at which it sells its goods.
In perfect competition, there are two main reasons why a firm cannot get away with setting its prices above the market price.  First, there is no difference between its product and that of every other firm in the market.  Therefore, no one will pay extra for a firm’s product the way that they might pay extra for something like Nike shoes.  Second, if a firm were to succeed in setting a higher price, more firms would enter the market, attracted by the higher profits that were available.  This would increase supply and drive down the price of the firm’s product

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