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Why is a perfectly competitive firm called a price taker and a monopolist a price maker?

  1. In the context of the stock market, individual investors are price-takers.
  2. Suppose you sell water, which of course is supplied by millions of other places, including the sky. If you decide to set the price of a gallon of your water at $10, you will likely sell nothing because this commodity is readily available elsewhere for a much cheaper price.
Price Maker
  1. A monopoly is a price maker as it holds a large amount of power over the price it charges.
  2. A price maker that is a firm within monopolistic competition produces goods that are differentiated in some way from its competitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its marginal revenue is greater than its marginal cost, in other words, as long as it's producing a profit.


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