Final answer:
A price taker firm is one that cannot set the prices for its products and must accept the market price determined by supply and demand. In a perfectly competitive market, any attempt by a firm to raise its price above the market equilibrium will result in the firm losing all sales due to the availability of numerous substitutes.
Step-by-step explanation:
A price taker firm is one that operates in a perfectly competitive market structure and thus must accept the prevailing market price determined by the forces of supply and demand. As there are many competing firms and the products are deemed perfect substitutes, the individual firm cannot influence the price by altering its supply and has no choice but to accept the market price. In such environments, if a firm were to increase its price by even a small amount, it risks losing all its customers to competitors, which highlights the market's competitive nature. For instance, when a wheat grower needs to know the current price of wheat, they have to check electronic systems or listen to announcements, as the price at which they can sell their wheat is the same one set for everyone and they have no influence over it.
Raising the price is not a viable option for a price taker. If a firm that is part of a perfectly competitive market decides to charge more, it simply won't make any sales, as customers will turn to the numerous alternatives available at the lower market price. Therefore, being a very small player in a large market, such a firm can often only compete on making operational efficiencies to maintain or increase profitability, instead of attempting to manipulate prices.