What assumptions are necessary for a market to be perfectly competitive? In light of what you have learned in this chapter, why is each of these assumptions important? For a market to be perfectly competitive, A. firms must be price takers, firms must produce a homogeneous product, and firms must be able to easily enter and exit the market. B. firms must have market power, firms must produce a differentiated product, and firms must be able to easily enter and exit the market. C. only one firm can have access to a key input, the government must regulate entry of new firms, and the long-run average cost of production must be decreasing. D. only one firm can produce output, no close substitutes may exist, and firms must not be able to enter the market. E. only a few firms may produce output, firms must have market power, and firms must produce a homogenous product.

A

Firms must be price takers, firms must produce a homogeneous product, and firms must be able to easily enter and exit the market

Explanation:

A perfectly competitive market is a market in there are many sellers of a single homogeneous goods, many buyers, abundance of information about product, free entry and exit at any point and no transaction cost. None of the (selling) firms is big enough to determine the market price. A perfectly competitive market totally follows the law of demand and supply.

Total revenue for a firm in a perfectly competitive market is the function of product price and quantity (TR = P * Q).

Option A and B is applicable for a market to be perfectly competitive, A. firms must be price takers, firms must produce a homogeneous product, and firms must be able to easily enter and exit the market. B. firms must have market power, firms must produce a differentiated product, and firms must be able to easily enter and exit the market.  

Explanation:

Perfect competition refers to the situation prevailing in a market in which buyers and sellers are in abundance and well informed that all elements of monopoly are non existent and the market price of a commodity is beyond the control of individual buyers and sellers.

For firm to attain perfect competition, certain conditions must be met. Here is a few to begin with.

From the foregoing, option A and B are satisfactory assumptions for perfect competition.

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