Under perfect competition, price is determined by:
Options
AFirm
BIndustry
CGovernment
DSociety
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Price Determination in Different MarketsPYQ - May 2018Question 76 of 20
All Questions Correct Answer
✅ Option b — Industry
All Options:
- AFirm
- BIndustry
- CGovernment
- DSociety
Detailed Solution & Explanation
To determine the correct answer, let's break down the concept of perfect competition.
• Perfect competition is a market structure where many firms produce a homogeneous product, and no single firm has the power to influence the market price.
• In such a market, the price is determined by the interaction of demand and supply in the industry as a whole, not by individual firms.
• This is because each firm is a price-taker, meaning it has to accept the market price and cannot influence it by changing its output.
• The industry supply and demand curves intersect to determine the market price, which is then taken as given by each firm.
The correct answer is right because the industry as a whole determines the price through the forces of demand and supply.
• Option A, Firm, is incorrect because under perfect competition, firms are price-takers, not price-makers.
• Option C, Government, is also incorrect because in a perfectly competitive market, the government does not intervene to set prices, the market forces do.
About This Chapter: Price Determination
Paper
Paper 4: Business Economics
Weightage
15%
Key Topics
Perfect Competition, Monopoly, Monopolistic, Oligopoly
This high-weightage chapter covers all four market structures: Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly. Students learn how price and output are determined under each structure, along with key concepts like Price Discrimination, Kinked Demand Curve, and the conditions of equilibrium (MR = MC).
View Official ICAI SyllabusExam Strategy Tip
This chapter carries the highest weightage (~15%). Focus on features of each market, the shape of AR and MR curves, and understand why firms in Perfect Competition are 'Price Takers' while Monopolists are 'Price Makers'.
Key Concepts to Understand
Related Comparison Tables
More Questions from Price Determination in Different Markets
Under which of the following forms of market structure does a firm have no control over the price of its product?
A firm encounters its "shutdown point" when:
Kinked demand curve hypothesis is designed to explain in context of oligopoly
Which of the following is not a characteristic of a "Price Taker"?
Price discrimination will be profitable only if the elasticity of demand in different markets is:
Which of the following is not an essential condition of pure competition?
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