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      Question

      Which of the following statements are true regarding the

      Perfect Competition market structure? 1. All firms in a perfectly competitive market sell identical products. 2. Firms in a perfectly competitive market have control over prices. 3. There is free entry and exit in a perfectly competitive market. 4. In the long run, firms in a perfectly competitive market earn normal profits. Select the correct answer using the code below:
      A 1, 3, 4 Correct Answer Incorrect Answer
      B 2, 3, 4 Correct Answer Incorrect Answer
      C 1, 2, 3 Correct Answer Incorrect Answer
      D 1, 4 Correct Answer Incorrect Answer

      Solution

      • Statement 1 is correct as firms in a perfectly competitive market sell identical products. • Statement 2 is incorrect because firms in perfect competition are price takers and do not have control over the market price. • Statement 3 is correct because in perfect competition, there are no barriers to entry or exit, allowing firms to freely enter or leave the market. • Statement 4 is correct because in the long run, firms in perfect competition earn normal profits, as the entry of new firms drives economic profits to zero.

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