Question

Which of the following are characteristics of a perfectly competitive market? A. There is perfect information in the market.
B. The market price is determined by the collective interaction of supply and demand.
C. Each firm has significant market power to influence prices.
D. Firms in a perfectly competitive market earn normal profit in the long run.
Choose the correct answer:

• A. A, B, and D only
• B. B, C, and D only
• C. A, C, and D only
• D. A, B, C, and D

Hint:

In perfect competition, firms are price takers and earn normal profit in the long run.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Perfect competition is a market structure with many buyers and sellers, homogeneous products, and no barriers to entry.
Step 2: Detailed Explanation:
- Statement A: Correct. Perfect information ensures that all buyers and sellers are aware of the prevailing price and product quality.
- Statement B: Correct. Firms are "Price Takers." The price is determined by the industry (intersection of market demand and market supply).
- Statement C: Incorrect. Because there are a large number of small firms, no single firm has any power to influence the market price.
- Statement D: Correct. In the long run, super-normal profits are wiped out by the entry of new firms, and losses lead to the exit of firms, leaving existing firms with only "Normal Profits."
Step 3: Final Answer:
Statements A, B, and D are valid characteristics, while C describes a Monopoly or Oligopoly.
Therefore, option (A) is correct.