Multiple Choice
In a competitive market, a firm always has a competitive disadvantage when its return on invested capital is:
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following lists includes three competitive factors that impact only firms operating in perfectly competitive markets?
A
Price-taking behavior, free entry and exit, homogeneous products
B
Advertising, monopoly power, government regulation
C
Number of buyers, product differentiation, barriers to entry
D
Collusion, price discrimination, limited information
Verified step by step guidance1
Step 1: Understand the characteristics of a perfectly competitive market. These include many buyers and sellers, homogeneous products, free entry and exit, and firms being price takers.
Step 2: Identify the factors that specifically apply to firms in perfectly competitive markets. Price-taking behavior means firms accept the market price without influence.
Step 3: Recognize that free entry and exit allow firms to enter or leave the market without restrictions, which is a key feature of perfect competition.
Step 4: Note that homogeneous products imply that all firms sell identical products, so no firm can charge a higher price based on product differences.
Step 5: Compare these factors to the other options, which include elements like monopoly power, product differentiation, and collusion, none of which are characteristics of perfect competition.
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