Q31. With reference to the features of a perfectly competitive market, consider the following statements:
1. All firms in the market produce certain heterogeneous goods/services.
2. In such a market buyers must accept the prevailing prices but the sellers have the freedom to influence the prices.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Exp: A perfectly competitive market structure is approximated by a market satisfying the following conditions:
1. There exist a very large number of firms and consumers of the commodity, such that the output sold by each firm is negligibly small compared to the total output of all the firms combined, and similarly, the amount purchased by each consumer is extremely small in comparison to the quantity purchased by all consumers together.
2. All firms in the market produce a certain homogeneous good.
3. Each buyer and seller in the market is a price-taker. A price-taker is an individual or a company that must accept prevailing prices in a market, lacking the market share to influence market price on its own.
4. Firms are free to start producing the commodity or to stop production.
5. Consumers and firms have perfect knowledge of the output, inputs and their prices.