Multiple Choice
Which of the following is a reason why firms in a perfectly competitive market have no market power?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which of the following characteristics must a manufacturing company that produces a single product possess in order to operate in a perfectly competitive market?
A
The company must have significant control over the market price.
B
The product must be identical to those produced by other firms.
C
There must be high barriers to entry for new firms.
D
The company must engage in extensive advertising to differentiate its product.
Verified step by step guidance1
Understand the defining characteristics of a perfectly competitive market: many firms, identical products, no single firm can influence the market price, free entry and exit, and perfect information.
Analyze the characteristic 'The product must be identical to those produced by other firms' — this is essential because in perfect competition, products are homogeneous, meaning consumers see no difference between products from different firms.
Consider the characteristic 'The company must have significant control over the market price' — in perfect competition, firms are price takers, so no single firm can influence the market price; this characteristic does not hold.
Evaluate 'There must be high barriers to entry for new firms' — perfect competition requires free entry and exit, so high barriers contradict this condition.
Assess 'The company must engage in extensive advertising to differentiate its product' — product differentiation is absent in perfect competition, so advertising to differentiate is unnecessary and inconsistent with perfect competition.
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