Multiple Choice
Which of the following is an example of a market that closely resembles perfect competition?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which of the following is true for a perfectly competitive market?
A
Products sold by firms are highly differentiated.
B
There are significant barriers to entry for new firms.
C
Firms can set prices above the market equilibrium.
D
Firms are price takers and cannot influence the market price.
Verified step by step guidance1
Understand the characteristics of a perfectly competitive market: many firms, identical (homogeneous) products, free entry and exit, and perfect information.
Recognize that in perfect competition, products are not differentiated; they are identical, so the first statement about highly differentiated products is false.
Recall that there are no significant barriers to entry or exit in a perfectly competitive market, so the second statement about significant barriers is false.
Know that firms in perfect competition are price takers, meaning they accept the market price and cannot set prices above the equilibrium; thus, the third statement about setting prices above equilibrium is false.
Conclude that the true statement is that firms are price takers and cannot influence the market price, which aligns with the fundamental nature of perfect competition.
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