1. A price taker could be an individual or a company that has no influence at all in
determining the prices of products in the market.
a) Many buyers and many sellers.
The market is composed of large number of sellers (firms) and buyers so that each individual
firm, even if it’s large, could supply a very small part of the total quantity found in the entire
market. The buyers are also found in large numbers so that no monopolistic power affects the
market condition.
b) Identical Products
The firms in the industry also produce homogeneous products. All the characteristics and
services associated with the delivery and even sale are identical. This will help the firms in
avoiding the problems of discretion when setting the prices.
c) Free entry and exit
Barriers does not exist in the entry and exit to and from the industry. Entering or exiting could
take time but there is full freedom of movement in the industry. If there were barriers in the
industry then the number of firms will be small and therefore acquire power to influence the
market prices.
d) Perfect information
It’s assumed that the buyers and the sellers have perfect knowledge concerning the current and
future market prices. With this information there is no uncertainty on what is going to happen in
the market in future. This knowledge cost nothing.
2. A short-run break-even price is the price at which the firm’s total income is equal to its
total costs incurred during production. At that point, the economic profits equal to zero
