Which of the following statements best describes a competitive market in microeconomics?

• A. Firms collaborate to restrict output and maximize joint profits.
• B. Many firms sell identical products and no single firm can influence the market price.
• C. A few large firms dominate the market and set prices for all buyers.
• D. Each firm targets a unique customer segment and sets its own price independently.

Answer: (B)

Verified step by step guidance

1. Understand the definition of a competitive market in microeconomics: it is a market structure characterized by many firms selling identical or homogeneous products.
2. Recognize that in a competitive market, no single firm has the power to influence the market price because each firm is a price taker due to the presence of many competitors.
3. Contrast this with other market structures: for example, in an oligopoly, a few large firms dominate and may set prices, while in monopolistic competition, firms sell differentiated products and have some price-setting power.
4. Note that firms in a competitive market do not collaborate to restrict output; instead, they independently decide their production levels based on market prices.
5. Therefore, the statement that best describes a competitive market is: 'Many firms sell identical products and no single firm can influence the market price.'