Question:
Which of the following are characteristics of a perfectly competitive market? A – New firms can enter the market easily. B – There is no product differentiation. C – The market demand curve is perfectly elastic. D – The supply curve of an individual firm in the market is perfectly elastic.
(1) A and B only.
(2) A and C only.
(3) A, B and C only.
(4) A, B and D only.
(5) B and C only.
Correct Answer:
(1)
Answer Explanation:
Perfect competition is characterized by free entry/exit (A) and homogeneous (undifferentiated) products (B). Statement C is false: the individual firm’s demand curve is perfectly elastic, but the market demand curve slopes downward. Statement D is false: an individual firm’s supply curve is its upward-sloping MC curve above the AVC.
Topic: Market Structures Year: 2018
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