Question

The three primary characteristics of a perfectly competitive market are _____________.

• A. The firm's products are homogeneous, the firms are price takers and them are barriers to entry into the market
• B. The firm's products are unique; they set their own price and can freely enter and exit the market.
• C. The firm's products are unique, they are price takers and there are no barriers to entry in the market.
• D. The firm's products are homogeneous; the firms are price takers and can freely enter and exit the market.

Answer 1

The correct option is D The firm's products are homogeneous; the firms are price takers and can freely enter and exit the market.

Perfect competition is a type of market where there are huge number of buyers and sellers who deals in homogeneous products due to which no individual unit is able to influence the price of the product. So the firms are the price taker.

Under perfect competition, there is freedom of entry and exit of firms. Therefore, when there is super-normal profits or losses the firms in the market enter and exit respectively due to which the firms in the industry only earn normal profits in the long run.