In a perfectly competitive market setting, which of the following is true about individual firms?

• A. They are price takers and cannot influence the market price.
• B. They earn long-run economic profits due to barriers to entry.
• C. They can set prices above the market equilibrium.
• D. They face downward-sloping demand curves for their products.

Answer: (A)

Verified step by step guidance

1. Understand the characteristics of a perfectly competitive market: many firms, identical products, free entry and exit, and perfect information.
2. Recall that in perfect competition, each individual firm is a price taker, meaning it accepts the market price as given and cannot influence it.
3. Recognize that because products are identical and there are many sellers, firms face a perfectly elastic (horizontal) demand curve at the market price, not a downward-sloping one.
4. Know that in the long run, free entry and exit drive economic profits to zero, so firms do not earn long-run economic profits.
5. Conclude that the correct statement is that individual firms are price takers and cannot influence the market price.