What does the perfectly competitive model assume?

Question

Quizplus · Accepted Answer

The perfectly competitive model assumes that firms can enter and exit the industry with relatively ease. This means there are no barriers to entry or exit in the market and any firm can easily start producing and selling.

Answer: B
 The perfectly competitive model assumes that firms compete by varying a product's quality rather than its price. This is due to the fact that in a perfectly competitive market, all firms sell an identical product, so price cannot be used as a way to differentiate products. However, firms can try to differentiate their products by offering better quality, which can attract more customers.

Note: Option A is incorrect because in a perfectly competitive market, no individual seller has the ability to influence the market price. Option D is also incorrect because in a perfectly competitive market, raising prices simply results in losing market share to other firms who offer a cheaper price for the same product.

What Does the Perfectly Competitive Model Assume