Multiple Choice
Which of the following is an advantage of a centralized purchasing department in competitive markets?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following does competition in a competitive market imply?
A
Products are highly differentiated among sellers.
B
Firms can set prices above the equilibrium without losing customers.
C
Firms are price takers and cannot influence the market price.
D
There are significant barriers to entry for new firms.
Verified step by step guidance1
Understand the concept of a competitive market: In microeconomics, a perfectly competitive market is characterized by many buyers and sellers, where no single firm can influence the market price.
Recall the definition of price takers: Firms in a perfectly competitive market are price takers, meaning they accept the market price as given and cannot set prices above it without losing customers.
Analyze product differentiation: In a competitive market, products are typically homogeneous or very similar, not highly differentiated, which means consumers see them as perfect substitutes.
Consider barriers to entry: Perfect competition assumes free entry and exit, so there are no significant barriers to new firms entering the market.
Conclude that the correct implication of competition in a competitive market is that firms are price takers and cannot influence the market price.
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