Multiple Choice
Which one of the following best illustrates a characteristic of a perfectly competitive market?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which of the following is true of a firm in a perfectly competitive industry?
A
It can set its own price above the market equilibrium.
B
It faces a downward-sloping demand curve for its product.
C
It produces a differentiated product to attract customers.
D
It is a price taker and cannot influence the market price.
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many firms, identical products, free entry and exit, and perfect information.
Recognize that in perfect competition, each firm is a price taker, meaning it accepts the market price as given and cannot influence it.
Recall that the demand curve faced by an individual firm in perfect competition is perfectly elastic (horizontal) at the market price, not downward-sloping.
Note that firms in perfect competition produce homogeneous (identical) products, so they do not differentiate their products to attract customers.
Conclude that the correct statement is that the firm is a price taker and cannot set its own price above the market equilibrium.
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