The correct answer is: C. Both are price takers.
In a perfectly competitive market, firms are price takers because they have no control over the market price. The price is determined by the interaction of supply and demand in the market, and firms must accept the prevailing price in order to sell their goods or services.
There are several reasons why firms in a perfectly competitive market are price takers. First, the number of firms in the market is large, so each firm is a small part of the overall market. This means that no one firm can have a significant impact on the market price.
Second, the products sold by firms in a perfectly competitive market are homogeneous, meaning that they are identical. This means that consumers do not care about which firm they buy from, as long as they are getting the same product.
Third, there are no barriers to entry or exit in a perfectly competitive market. This means that firms can easily enter or exit the market, and there are no costs associated with doing so.
As a result of these factors, firms in a perfectly competitive market have no control over the market price. They must accept the prevailing price in order to sell their goods or services. If a firm tries to charge a higher price, it will not be able to sell any of its products, as consumers will simply buy from one of the many other firms that are selling the same product at a lower price.
On the other hand, if a firm tries to charge a lower price, it will not be able to make any profit, as its costs will be higher than the price it is charging.
Therefore, firms in a perfectly competitive market have no choice but to accept the prevailing market price. They are price takers, not price setters.