Which situation best describes a pure competition market structure?

• A. One firm controls the entire market and sets prices without competition.
• B. Many firms sell identical products and no single firm can influence the market price.
• C. Firms sell differentiated products and compete through advertising.
• D. A few firms dominate the market and set prices through collusion.

Answer: (B)

Verified step by step guidance

1. Understand the characteristics of a pure competition market structure: it involves many firms selling identical (homogeneous) products, with no single firm able to influence the market price.
2. Recognize that in pure competition, firms are price takers, meaning the market determines the price and individual firms accept it without control.
3. Compare the given options to these characteristics: identify which option mentions many firms, identical products, and no price-setting power by individual firms.
4. Eliminate options that describe monopoly (one firm controls the market), monopolistic competition (differentiated products and advertising), and oligopoly (few firms with potential collusion).
5. Conclude that the option stating 'Many firms sell identical products and no single firm can influence the market price' best fits the pure competition market structure.