Which of the following is true under conditions of perfect competition?

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

Answer: (D)

Verified step by step guidance

1. Understand the key characteristics of a perfectly competitive market: many buyers and sellers, homogeneous (identical) products, free entry and exit, and perfect information.
2. Analyze the statement about barriers to entry: in perfect competition, there are no significant barriers to entry or exit, allowing firms to freely enter or leave the market.
3. Evaluate the product differentiation claim: products in perfect competition are homogeneous, meaning they are identical and not differentiated across firms.
4. Consider the pricing power of firms: in perfect competition, individual firms are price takers, meaning they accept the market price and cannot set prices above the equilibrium.
5. Conclude that the true statement is that firms are price takers and cannot influence the market price, which aligns with the fundamental assumptions of perfect competition.