Multiple Choice
Which of the following markets would most closely resemble a perfectly competitive market?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which one of the following best illustrates a characteristic of a perfectly competitive market?
A
Products are highly differentiated among firms.
B
There are significant barriers to entry for new firms.
C
Firms have significant control over market price.
D
Firms sell identical products and are price takers.
Verified step by step guidance1
Understand the defining characteristics of a perfectly competitive market: many firms, identical (homogeneous) products, no barriers to entry or exit, and firms are price takers.
Analyze the options given and identify which one aligns with these characteristics. For example, 'products are highly differentiated' contradicts the identical products condition.
Recognize that 'significant barriers to entry' contradicts the free entry and exit condition in perfect competition.
Note that 'firms have significant control over market price' contradicts the price taker condition, where firms accept the market price.
Conclude that the option stating 'firms sell identical products and are price takers' best illustrates the characteristics of a perfectly competitive market.
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