Multiple Choice
Which situation gives the best example of a price-taker as it pertains to perfect competition?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which of the following factors is an assumption of perfect competition?
A
Firms can set prices above market equilibrium
B
Firms sell identical products
C
There are significant barriers to entry
D
Buyers and sellers have limited information
Verified step by step guidance1
Understand the key assumptions of perfect competition, which include: many buyers and sellers, identical (homogeneous) products, free entry and exit in the market, and perfect information among buyers and sellers.
Evaluate each option against these assumptions: 'Firms can set prices above market equilibrium' contradicts perfect competition because firms are price takers, not price makers.
'Firms sell identical products' aligns with the assumption that products are homogeneous in perfect competition.
'There are significant barriers to entry' contradicts the assumption of free entry and exit in perfect competition.
'Buyers and sellers have limited information' contradicts the assumption of perfect information in perfect competition.
Conclude that the correct assumption of perfect competition from the given options is that firms sell identical products.
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