When individual firms are small and the number of firms is large, this describes which degree of competition?
A) Selective competition
B) Monopolistic competition
C) Monopoly
D) Perfect competition
E) Oligopoly

Question

Quizplus · Accepted Answer

Perfect competition is characterized by a large number of small firms that produce identical or homogeneous products. In this market structure, each firm has a negligible market share, and consumers perceive all the products as perfect substitutes for each other. Therefore, firms have no market power to influence the price, and are price-takers. In perfect competition, the entry of new firms is easy, and the exit is also easy, which means that the market is contestable. These conditions promote efficiency and consumer welfare.

When Individual Firms Are Small and the Number of Firms