Multiple Choice
Which of the following is NOT a recognized advantage to the franchisee of starting a franchise?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a perfectly competitive market setting, which of the following is true about individual firms?
A
They are price takers and cannot influence the market price.
B
They earn long-run economic profits due to barriers to entry.
C
They can set prices above the market equilibrium.
D
They face downward-sloping demand curves for their products.
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many firms, identical products, free entry and exit, and perfect information.
Recall that in perfect competition, each individual firm is a price taker, meaning it accepts the market price as given and cannot influence it.
Recognize that because products are identical and there are many sellers, firms face a perfectly elastic (horizontal) demand curve at the market price, not a downward-sloping one.
Know that in the long run, free entry and exit drive economic profits to zero, so firms do not earn long-run economic profits.
Conclude that the correct statement is that individual firms are price takers and cannot influence the market price.
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