Multiple Choice
When small businesses compete with large firms in competitive markets, a main disadvantage is:
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following statements best describes a competitive market in microeconomics?
A
Firms collaborate to restrict output and maximize joint profits.
B
Many firms sell identical products and no single firm can influence the market price.
C
A few large firms dominate the market and set prices for all buyers.
D
Each firm targets a unique customer segment and sets its own price independently.
Verified step by step guidance1
Understand the definition of a competitive market in microeconomics: it is a market structure characterized by many firms selling identical or homogeneous products.
Recognize that in a competitive market, no single firm has the power to influence the market price because each firm is a price taker due to the presence of many competitors.
Contrast this with other market structures: for example, in an oligopoly, a few large firms dominate and may set prices, while in monopolistic competition, firms sell differentiated products and have some price-setting power.
Note that firms in a competitive market do not collaborate to restrict output; instead, they independently decide their production levels based on market prices.
Therefore, the statement that best describes a competitive market is: 'Many firms sell identical products and no single firm can influence the market price.'
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