Which statement about a competitive product market is accurate?

• A. Firms in a competitive market can set prices above the equilibrium without losing customers.
• B. Barriers to entry are high in competitive markets.
• C. Firms in a competitive market are price takers and cannot influence the market price.
• D. Products sold in a competitive market are highly differentiated.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the characteristics of a perfectly competitive market. Key features include many buyers and sellers, identical (homogeneous) products, free entry and exit, and firms being price takers.
2. Step 2: Analyze the statement 'Firms in a competitive market can set prices above the equilibrium without losing customers.' In a competitive market, since products are identical, if a firm sets a price above the market price, customers will buy from other firms, so this statement is false.
3. Step 3: Consider the statement 'Barriers to entry are high in competitive markets.' Competitive markets are characterized by low or no barriers to entry, allowing new firms to enter freely, so this statement is false.
4. Step 4: Evaluate the statement 'Firms in a competitive market are price takers and cannot influence the market price.' This aligns with the definition of perfect competition, where individual firms accept the market price as given, making this statement true.
5. Step 5: Review the statement 'Products sold in a competitive market are highly differentiated.' In perfect competition, products are homogeneous, meaning they are identical, so this statement is false.