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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

    тАв Statement 1 is correct as firms in a perfectly competitive market sell identical products. тАв Statement 2 is incorrect because firms in perfect competition are price takers and do not have control over the market price. тАв 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. тАв 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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