Question

All firms sell an identical product;

a. All firms are price takers - they cannot control the market price of their product;
b. All firms have a relatively small market share;
c. Buyers have complete information about the product being sold and the prices charged by each firm; and
d. The freedom of entry and exit characterize the industry, sometimes referred to as pure competition

Answer 1

In a perfectly competitive market all firms are price takers, which means they accept the market price for their product. They must produce identical products and face easy entry and exit from the market. In the long-run, all firms in a perfectly competitive industry will have entered and exited the market and profits will be driven to zero.

Step-by-step explanation:

A perfectly competitive firm is a price taker, which means that it must accept the equilibrium price at which it sells goods. If a perfectly competitive firm attempts to charge even a tiny amount more than the market price, it will be unable to make any sales. In a perfectly competitive market there are thousands of sellers, easy entry, and identical products. A short-run production period is when firms are producing with some fixed inputs. Long-run equilibrium in a perfectly competitive industry occurs after all firms have entered and exited the industry and seller profits are driven to zero.