Perfect competition is characterized by all of the following EXCEPT

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BlackTom AI · Accepted Answer

We start by restating the question and the options to ground the discussion: Question: Perfect competition is characterized by all of the following EXCEPT
Options:
a. a large number of buyers and sellers.
b. well-informed buyers and sellers with respect to prices.
c. considerable advertising by individual firms.
d. no restrictions on entry into or exit from the industry.

Now, evaluate each option in turn. 
Option a: A large number of buyers and sellers is a hallmark of perfect competition. In such a market, no single buyer or seller can influence the market price, which helps create a competitive environment. This statement aligns with the standard model of perfect competition, so it is consistent with the characteristics being described.

Option b: Well-informed buyers and sellers with respect to prices is another key feature. Information symmetry ensures that participants can make rational decisions and that prices reflect true supply and demand forces. This, too, matches the typical description of perfect competition.

Option c: Considerable advertising by individual firms would imply that firms have some market power or that information is imperfect, which would undermine the idea of price-taking behavior and homogeneous products in perfect competition. In a perfectly competitive market, firms typically do not advertise aggressively because products are identical and prices are determined by the market; advertising would incur costs without allowing firms to gain market share, contradicting the model.

Option d: No restrictions on entry into or exit from the industry is another foundational feature. Free entry and exit ensure that profits tend toward zero in the long run and that competitive pressures remain strong, which is consistent with perfect competition.

In summary, options a, b, and d describe standard characteristics of a perfectly competitive market, whereas option c describes behavior (significant advertising by individual firms) that contradicts the core assumptions of perfect competition. Advertising at the individual-firm level is typically associated with imperfect competition, where firms seek to differentiate products or gain market power. Therefore, option c stands as the exception to the characteristics of perfect competition, while the others align with its defining features.

251_ECO201 practice market structures

Perfect competition is characterized by all of the following EXCEPT

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