Question

In perfect competition, there is a process of ______.

• A. free entry but restricted exit of the firms
• B. free entry and free exit of the firms
• C. restricted entry and exit of the firms
• D. semi-free exit but absolute free entry

Answer 1

Answer: (B)

free entry and free exit of the firms

Perfect competition is a market structure in which the following criterias are met:

• All firms sell an identical product;
  
• All firms are price takers - they cannot control the market price of their product;
  
• All firms have a relatively small market share;
  
• Buyers have complete information about the product being sold and the prices charged by each firm;
  
• The industry is characterized by freedom of entry and exit. Perfect competition is sometimes referred to as "pure competition".