Question

What assumptions are necessary for a market to be perfectly​ competitive? In light of what you have learned in this​ chapter, why is each of these assumptions​ important? For a market to be perfectly​ competitive, A. only a few firms may produce​ output, firms must have market​ power, and firms must produce a homogenous product. B. firms must be price​ takers, firms must produce a homogeneous​ product, and firms must be able to easily enter and exit the market. C. only one firm can produce​ output, no close substitutes may​ exist, and firms must not be able to enter the market. D. only one firm can have access to a key​ input, the government must regulate entry of new​ firms, and the​ long-run average cost of production must be decreasing. E. firms must have market​ power, firms must produce a differentiated​ product, and firms must be able to easily enter and exit the market.

Answer 1

The correct answer is option B.

Step-by-step explanation:

In a perfectly competitive market, there is a large number of sellers selling homogenous products. Because of a large number of firms selling identical products, no single firm can affect the price and output level in the market.

All the firms are price takers and face a horizontal line demand curve. There is no restriction on the entry and exit of firms in the market. That is why firms earn zero economic profits in the long run.