Price Taker Case Study

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1. What is a price taker? Discuss the assumptions that are made in order to obtain the perfectly competitive model. --Answer below: Our book defines a price taker as a perfectly competitive firm that must take the price of its product as given because the firm cannot influence its price (Miller). This is like having 3 soda machines with the exact same soda in them just with a different label, on machine has it for a dollar each another has it for 1.50 and the last has it for 2.00. Everybody knows that the sodas are all the same so they pick the 1.00 sodas, no other sodas are sold since the dollar machine has the lowest price, the other machines must lower their price to a dollar to be perfectly competitive, and this is called taking the price…show more content…
Even when not making any economic profit a firm is making an accounting profit, this is usually a good enough reason for the firm to operate permanently at this price especially when the market rate of return is equal to or less than the accounting profit of the business. If on the other hand the market rate of return is greater than the break-even price then the business is running at an economic loss. This would still look like a profit to an accountant. Miller, R. (2012). Perfect Competition. In Economics Today The Micro View (16th ed., p. 515). Boston, MA: Pearson Addison-Wesley. 3. An upscale bistro in a small town charges higher prices for the same menu items at dinner time than at lunch time. Does the bistro necessarily practice price discrimination? Explain your answer. --Answer below: The bistro is not necessarily practicing price discrimination, I personally believe it would be price differentiation because the operating costs to run the bistro at dinner are most likely higher, and demand is higher. The operating costs are higher because of the staffing requirements for the dinner rush, more wait staff cooks and greeters are needed to handle the greater volume of diner patrons. If the customer and demand load is similar to the lunch time then they are practicing price
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