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. firms must be price​ takers, firms must produce a homogeneous​ product, and firms must be able to easily enter and exit the market. B. firms must have market​ power, firms must produce a differentiated​ product, and firms must be able to easily enter and exit the market. C. 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. D. only one firm can produce​ output, no close substitutes may​ exist, and firms must not be able to enter the market. E. only a few firms may produce​ output, firms must have market​ power, and firms must produce a homogenous product.

Answer 1

Option A and B is applicable for a market to be perfectly​ competitive, A. firms must be price​ takers, firms must produce a homogeneous​ product, and firms must be able to easily enter and exit the market. B. firms must have market​ power, firms must produce a differentiated​ product, and firms must be able to easily enter and exit the market.

Step-by-step explanation:

Perfect competition refers to the situation prevailing in a market in which buyers and sellers are in abundance and well informed that all elements of monopoly are non existent and the market price of a commodity is beyond the control of individual buyers and sellers.

For firm to attain perfect competition, certain conditions must be met. Here is a few to begin with.

• There are many buyers and sellers in the market.
• Each company makes a similar product.
• Buyers and sellers have access to perfect information about price.
• There are no transaction costs.
• There are no barriers to entry into or exit from the market.

From the foregoing, option A and B are satisfactory assumptions for perfect competition.

Answer 2

Answer: A

Firms must be price​ takers, firms must produce a homogeneous​ product, and firms must be able to easily enter and exit the market

Step-by-step explanation:

A perfectly competitive market is a market in there are many sellers of a single homogeneous goods, many buyers, abundance of information about product, free entry and exit at any point and no transaction cost. None of the (selling) firms is big enough to determine the market price. A perfectly competitive market totally follows the law of demand and supply.

Total revenue for a firm in a perfectly competitive market is the function of product price and quantity (TR = P * Q).