Multiple Choice
In a competitive market, which of the following best describes a focused low-cost strategy?
74
views
3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following is a characteristic of perfectly competitive markets?
A
Products are highly differentiated
B
Firms are price takers
C
Firms can set prices above market equilibrium
D
There are significant barriers to entry
Verified step by step guidance1
Understand the definition of a perfectly competitive market: it is a market structure characterized by many buyers and sellers, identical (homogeneous) products, free entry and exit, and perfect information.
Recall that in perfectly competitive markets, individual firms have no power to influence the market price because each firm's output is small relative to the total market supply.
Recognize that because products are identical, firms cannot charge a price higher than the market equilibrium price without losing all customers to competitors.
Note that there are no significant barriers to entry or exit, allowing firms to freely enter or leave the market based on profitability.
Conclude that the key characteristic is that firms are price takers—they accept the market price as given and cannot set prices above the equilibrium.
Related Videos
Related Practice
