Which of the following is a reason why firms in a perfectly competitive market have no market power?

• A. There are many buyers and sellers, so no single firm can influence the market price.
• B. Firms can set prices above the equilibrium to maximize profits.
• C. Barriers to entry prevent new firms from entering the market.
• D. Products are highly differentiated among firms.

Answer: (A)

Verified step by step guidance

1. Understand the concept of market power: Market power refers to a firm's ability to influence the price of a good or service in the market.
2. Recall the characteristics of a perfectly competitive market: Many buyers and sellers, homogeneous (identical) products, free entry and exit, and perfect information.
3. Analyze why having many buyers and sellers matters: Since there are many participants, no single firm can influence the market price by changing its own output or price.
4. Consider the other options: Firms cannot set prices above equilibrium because the market price is determined by supply and demand; barriers to entry do not exist in perfect competition, and products are not differentiated but identical.
5. Conclude that the key reason firms have no market power in perfect competition is because the presence of many buyers and sellers prevents any single firm from influencing the market price.