Multiple Choice
Which of the following statements best reflects a price-taking firm in a competitive market?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following statements about competition and rivalry in competitive markets is true?
A
Rivalry in competitive markets causes firms to restrict output to increase prices.
B
Competitive markets discourage innovation due to excessive rivalry.
C
In competitive markets, rivalry among firms leads to lower prices and greater efficiency.
D
Competition in competitive markets always results in monopolies forming over time.
Verified step by step guidance1
Step 1: Understand the concept of competition in competitive markets. Competition means multiple firms are trying to attract consumers by offering better prices, quality, or innovation.
Step 2: Analyze the effect of rivalry on output and prices. In competitive markets, firms do not restrict output to increase prices; instead, they tend to increase output to gain market share, which usually lowers prices.
Step 3: Consider the impact of competition on innovation. Competitive markets often encourage innovation because firms seek to differentiate themselves and attract more customers, rather than discourage it.
Step 4: Evaluate the claim about monopolies forming due to competition. Competitive markets are characterized by many firms and free entry and exit, which prevents monopolies from forming over time.
Step 5: Conclude that the true statement is that rivalry in competitive markets leads to lower prices and greater efficiency, as firms compete to offer better value to consumers.
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