Which of the following does competition in a competitive market imply?

• A. Products are highly differentiated among sellers.
• B. Firms can set prices above the equilibrium without losing customers.
• C. Firms are price takers and cannot influence the market price.
• D. There are significant barriers to entry for new firms.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a competitive market: In microeconomics, a perfectly competitive market is characterized by many buyers and sellers, where no single firm can influence the market price.
2. Recall the definition of price takers: Firms in a perfectly competitive market are price takers, meaning they accept the market price as given and cannot set prices above it without losing customers.
3. Analyze product differentiation: In a competitive market, products are typically homogeneous or very similar, not highly differentiated, which means consumers see them as perfect substitutes.
4. Consider barriers to entry: Perfect competition assumes free entry and exit, so there are no significant barriers to new firms entering the market.
5. Conclude that the correct implication of competition in a competitive market is that firms are price takers and cannot influence the market price.