Question

Which of the following are characteristics of a perfectly competitive industry? (Check all that apply.)

Multiple select question.
Firms in the industry sell a commodity product.
The industry is fragmented.
Consumers make purchasing decisions based on product features.
Individual firms have little or no ability to raise prices.

Answer 1

A perfectly competitive industry is characterized by firms selling a commodity product, the industry being fragmented, consumers basing decisions on price rather than features, and firms having no ability to set prices.

Step-by-step explanation:

Characteristics of a perfectly competitive industry include that firms in the industry sell a commodity product and are fragmented.

This means that many firms produce essentially the same product, and the market structure allows for many buyers and sellers.

In such an industry, consumers do not make purchasing decisions based on product features because products are identical; decisions are based strictly on price. Individual firms have little or no ability to influence prices and are considered "price takers". If the market determines an equilibrium price, firms must accept this price.

Also, there is free entry and exit into and out of the market, without restrictions.

Furthermore, it is important to note that in a perfectly competitive market, sellers and buyers have all relevant information to make rational decisions, ensuring the efficient functioning of the market.