Which of the following statements is correct regarding different types of markets?

• A. In a perfectly competitive market, firms are price takers and there are many sellers offering identical products.
• B. In a monopoly, there are many firms competing with slightly differentiated products.
• C. In monopolistic competition, firms face no barriers to entry and products are identical.
• D. In an oligopoly, each firm has no influence over market price.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of a perfectly competitive market. In this market structure, there are many sellers, the products offered are identical (homogeneous), and firms are price takers, meaning they cannot influence the market price and must accept it as given.
2. Step 2: Review the definition of a monopoly. A monopoly consists of a single firm that is the sole seller of a product with no close substitutes, giving it significant control over the market price. There are high barriers to entry preventing other firms from entering the market.
3. Step 3: Examine monopolistic competition. This market structure has many firms competing, but unlike perfect competition, the products are differentiated (not identical). There are low or no barriers to entry, allowing new firms to enter freely.
4. Step 4: Analyze the oligopoly market structure. An oligopoly consists of a few large firms that dominate the market. Each firm has some influence over the market price because their decisions affect one another, and products may be either identical or differentiated.
5. Step 5: Compare each statement in the problem to these definitions to identify which one correctly describes the market structures. The correct statement should align with the characteristics outlined in these steps.