What would happen if entry into a perfectly competitive market were difficult or restricted?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → The number of firms in the market could be small.
Free entry and exit is what allows a large number of firms to exist. If entry were difficult or restricted, the number of firms could be small.
Option (1) The demand curve facing each firm would become perfectly elastic. — Incorrect. A perfectly elastic demand curve comes from price-taking, which needs many firms; restricted entry works against it.
Option (2) Each firm would lose all its buyers. — Incorrect. A firm loses all its buyers when it raises its price above the market price.
Option (3) The products of all firms would become identical. — Incorrect. Identical products is a separate feature, homogeneous products; entry rules do not create it.
Option (4) The number of firms in the market could be small. — Correct. Fewer firms could come in.
NCERT (2026-27): “4.1 Perfect Competition: Defining Features … Free entry and exit mean that it is easy for firms to enter the market, as well as to leave it. This condition is essential for the large numbers of firms to exist. If entry was difficult, or restricted, then the number of firms in the market could be small. Perfect information implies that all buyers and all sellers are completely informed about the price, quality and other relevant details about the product, as well as the market.” |