Which of the following is true in a perfectly competitive market?

• A. Firms can set prices above the market equilibrium.
• B. Firms are price takers and cannot influence the market price.
• C. Products sold by firms are highly differentiated.
• D. There are significant barriers to entry for new firms.

Answer: (B)

Verified step by step guidance

1. Understand the characteristics of a perfectly competitive market: many firms, identical products, free entry and exit, and firms are price takers.
2. Recall that in perfect competition, no single firm can influence the market price because each firm's output is small relative to the total market.
3. Recognize that firms in perfect competition sell homogeneous (identical) products, so products are not differentiated.
4. Note that there are no significant barriers to entry or exit in a perfectly competitive market, allowing new firms to enter freely.
5. Conclude that the true statement is that firms are price takers and cannot set prices above the market equilibrium price.