The theory of perfect competition is built on several assumptions, including that
A) the individual firm can influence demand by advertising.
B) any firm can easily enter or leave the industry.
C) the individual firm can affect the price of the product it sells.
D) there are few producers of an identical product.
E) each firm must earn economic profits to remain in the industry.

Question

Quizplus · Accepted Answer

One of the key assumptions of perfect competition is that there is free entry and exit for firms in the industry. This means that new firms can easily enter the industry if profits are being made, and existing firms can exit if they are experiencing losses. This assumption ensures that any economic profits or losses are only temporary, and firms cannot earn above-normal profits in the long run. The other options are not consistent with the assumptions of perfect competition.

The Theory of Perfect Competition Is Built on Several Assumptions