Multiple Choice
In competitive markets, which type of firms are often better prepared to leap into global markets and react quickly to opportunities?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Suppose the market for apples is perfectly competitive. Which of the following statements is true about firms in this market?
A
Each firm is a price taker and cannot influence the market price.
B
Firms in the market face downward-sloping demand curves for their own output.
C
Barriers to entry prevent new firms from entering the market.
D
Each firm can set its own price above the market equilibrium.
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many firms, identical products, free entry and exit, and firms are price takers.
Recall that in perfect competition, each firm faces a perfectly elastic (horizontal) demand curve at the market price, meaning they cannot influence the price by changing their output.
Analyze the given statements: firms cannot influence the market price, so the statement that each firm is a price taker is consistent with perfect competition.
Recognize that firms in perfect competition do not face downward-sloping demand curves individually; the market demand curve is downward sloping, but each firm's demand curve is horizontal.
Note that barriers to entry do not exist in perfect competition, and firms cannot set prices above the market equilibrium because buyers would switch to other sellers.
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