CFA Practice Question

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CFA Practice Question

The term "price searcher" applies to all firms that ______

A. operate in a purely competitive environment.
B. face a downward-sloping demand curve.
C. purchase resources in a non-competitive market.
Correct Answer: B

A price searcher is distinguished from a price taker by the fact that the price searcher sells a differentiated product from his or her competitors. The price searcher has a more inelastic demand than the price taker. Therefore the price searcher's demand curve is downward-sloping while the price taker's is horizontal.

User Contributed Comments 6

User Comment
JimM A monopoly's demand curve is also downward sloping.
lpan Price takers are firms in perfect competition and their demand curve perfectly elastic(horizontal)
dmfcrowe Monopoly is also a price searcher, but differentiated by high entry barriers etc.
erinelize I thought a Monopoly was a price-setter. That's what the notes said...
b/c monopolies have incomplete information regarding market demand elasticity, it has to "experiment" with different output levels until it finds the profit-maximizing output and then it sets the price which corresponds to this quantity. So while a monopoly is a price-setter, it is also a price-searcher.
Creep Key difference to be noted between price-searcher and price-taker.
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