Perfect competition is characterized by all of the following EXCEPT

Question

BlackTom AI · Accepted Answer

To analyze which feature belongs to perfect competition, I’ll evaluate each statement on its own.
Option a: 'considerable advertising by individual firms.' In a perfectly competitive market, firms sell identical products and are price takers, so they have no incentive to advertise individual products because advertising would not differentiate their output or allow them to charge a higher price. Therefore, substantial advertising is not a characteristic of perfect competition. This makes option a suspect as the EXCEPT statement.
Option b: 'well-informed buyers and sellers with respect to prices.' A key assumption of perfect competition is that all participants have perfect information about prices and product quality, enabling buyers and sellers to make costless, rational decisions. This is a defining feature and thus true of perfect competition.
Option c: 'no restrictions on entry into or exit from the industry.' Free entry and exit are fundamental in perfect competition; if profits are above normal, new firms can enter, and if profits are below normal, firms can exit. This characteristic is consistent with perfect competition and true.
Option d: 'a large number of buyers and sellers.' Another standard attribute is a large number of participants, which prevents any single buyer or seller from influencing the market price. This is also true of perfect competition.
Putting these evaluations together, only option a deviates from the defining traits of perfect competition, while options b, c, and d align with its core assumptions.

252_EC201 practice market structures

Perfect competition is characterized by all of the following EXCEPT

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