Which is the most essential condition to ensure existence of large number of firms in a perfect competition?

Free entry and exit

The correct answer is option 3: Free entry and exit

• Free entry and exit is the most essential condition to ensure a large number of firms in a perfectly competitive market.
• If entry is restricted, fewer firms will be able to join the market, limiting competition. Similarly, if firms cannot exit freely, unprofitable firms may be forced to stay, distorting the market structure.
• Other conditions like perfect information and homogeneous products are important, but they do not directly determine the number of firms in the market. Instead, they contribute to price-taking behavior and consumer choice.