Perfect competition is characterized by all of the following except:

Perfect competition is characterized by all of the following except:

A) a large number of buyers and sellers.

B) firms can set their own prices.

C) no restrictions on entry into or exit from the industry.

D) buyers and sellers are well informed about prices.

E) firms produce an identical product.

Answer: The correct options are A, C, D and E.

Perfect competition is a theoretical structure of the market that exhibits some specific features in the following manners. It needs many buyers and sellers so no individual looking to dominate the market price. The industry must be operating under free conditions, meaning the barriers to entry or exit must not be allowed to restrict the freedom of firms to move into or out of the industry. Also, any kind of competitive model requires that perfect information about the prices be availed and accessible in the market to the buyers and sellers. Last but not least, it is obligatory to provide homogeneity or Perfect Competition in the product, which means consumers cannot differentiate one firm’s output from others. This means that option B is wrong because this is a perfectly competitive market whereby firms do not have the authority to determine the prices on their own.