A price taker operates in which market structure when there are no barriers to entry?

• A. Monopoly
• B. Oligopoly
• C. Competitive market
• D. Monopolistic competition

Answer: (C)

In a market with no barriers to entry, many firms compete and no single firm can influence the going price. Each firm takes the market price as given and cannot set it on its own, which is the hallmark of a price taker. This situation describes a competitive market: product is often similar across sellers, there are no restrictions that keep new competitors out, and free entry or exit ensures profits, if any, are driven to zero in the long run.

Because new firms can enter freely, if profits appear, more sellers enter and supply increases, pushing the price down until only normal profits remain. That dynamic—price taking plus free entry—defines the competitive market structure.

Monopolies have one seller and barriers to entry, so the firm can set price. Oligopolies feature a few firms with interdependent pricing and entry barriers. Monopolistic competition has many firms, but product differentiation gives each firm some price-making power, not a perfect price taker.