Question

Consider the market structure of perfect competition. What does the lack of entry barriers indicate?

A All firms will end up producing a unique and different product
B There are no significant obstacles preventing firms from entering and leaving the industry
C No new firms can enter an already-established industry
D Firms can enter the industry easily but cannot exit the industry easily

Answer 1

The lack of entry barriers in a perfect competition market structure means there are minimal or no challenges for firms entering or exiting the market, fostering a competitive environment and preventing monopolies.

Step-by-step explanation:

In the context of a perfect competition market structure, the lack of entry barriers indicates that there are no significant obstacles preventing firms from entering and leaving the industry. This ensures a field where firms can freely enter to compete and innovate, which may ultimately benefit consumers through lower prices and better product quality.

Barriers to entry include legal, technological, or market forces that can range from relatively minor, like the cost of renting retail space, to highly restrictive, such as control over essential resources. In a perfectly competitive market, such barriers are minimal or non-existent, promoting dynamic competition and preventing the formation of monopolies.

In summary, free entry and exit in a market are fundamental to ideal competition, ensuring that no single firm can dominate the market, and that prices reflect the true cost of production and supply and demand.