Question

Which idea is inconsistent with pure competition?

Selected Answer: 2. standardized product Answers: 1. no restrictions on entry or exit of firms 2. standardized product 3. a small number of buyers and sellers 4. short-run losses

Answer 1

Since in the perfectly competitive firm, there are large number of buyers and sellers and they sell identical product and price is determined by industry and not by the firm. So any firm or any buyers can buy or sell any quantity of goods at the market price. There is a large number of buyers and sellers.

The necessary condition for the perfect competition are;

1. Homogenous product; In the perfect competition, firm sells identical product based on color, size and quality.
2. A perfectly competitive firm is price taker and industry is price maker.
3. The profit-maximising condition is

P=MC

Price and MR are same for all unit of output.

Efficient production. A perfectly competitive firm is said to have an efficient because more quantity is produced at lower price and there is no DWL.

It means that  a small number of buyers and sellers idea is inconsistent with pure competition.

Hence option 3 is the correct answer.