Why is a firm under perfect competition a price taker while under monopoly a price maker Explain in brief.

A firm under perfect competition is a price taker by the following reasons:

1. Number of Firms: The number of firms under perfect competition is so large that no individual firm by changing sale, can cause any meaningful change in the total market supply. Hence, market price remains unaffected.
2. Homogeneous Product: All firms in a perfectly competitive industry produce homogeneous product. Hence, price remains same.
3. Perfect Knowledge: All the buyers and sellers have perfect knowledge about market price so no firm charge a different price than market price. Hence a uniform price prevails in the market.

A firm under monopoly a price maker by the following reasons:

1. A monopolist is a single seller of the product in the market. Hence it has full control over supply.
2. There are no close substitutes of the monopoly product hence the demand is less elastic or 'inelastic.'
3. There are legal, technical and natural barriers to the entry of new firms so that there is no fear of increase in market supply.