Which of the following statements about perfect competition is true?

• A. Firms in perfect competition are price takers and cannot influence the market price.
• B. There are significant barriers to entry in a perfectly competitive market.
• C. Products sold by firms in perfect competition are highly differentiated.
• D. Firms in perfect competition can earn long-run economic profits.

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 firms are price takers.
2. Recall that in perfect competition, firms are price takers, meaning they accept the market price and cannot influence it because each firm's output is small relative to the total market.
3. Recognize that there are no significant barriers to entry or exit in perfect competition, allowing firms to enter or leave the market freely.
4. Note that products in perfect competition are homogeneous (identical), not differentiated, so consumers see no difference between products from different firms.
5. Understand that in the long run, firms in perfect competition earn zero economic profit because free entry and exit drive profits to normal levels.