Key Features of Perfect Competition

Steps:

• Recall that perfect competition involves many small firms producing identical products with free entry and exit.
• Identify core traits: firms face a horizontal demand curve due to perfect information and numerous sellers.
• Eliminate options mismatched with these traits, like scale benefits or product differences.
• Confirm the defining behavior: firms accept the market price without influence.

Why B is correct:

• In perfect competition, firms are price takers because the market sets the price through supply and demand, and no single firm can affect it due to infinite buyers and sellers (law of large numbers in market structure).

Why the others are wrong:

• A: Firms are small and operate at minimum efficient scale, not achieving further economies typical of larger firms in imperfect markets.
• C: Non-price competition like advertising occurs in oligopolies, not here where products are identical.
• D: Products are homogeneous, unlike differentiated goods in monopolistic competition.

Final answer: B