In the context of perfect competition, which one of the following is…

In the context of perfect competition, which one of the following is not correct?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Firm has full control over price.

Under perfect competition each firm is a price taker. The market sets the price, and a firm has no control over it, so Option (1) is not correct.

Option (1) Firm has full control over price. — False. If a firm sets its price above the market price, it cannot sell anything. Buyers go to other firms for the same product.
Option (2) Horizontal straight line demand curve of the firm. — True. The firm can sell any quantity at the market price. So its demand curve is a horizontal line at that price.
Option (3) Freedom of entry and exit. — True. It is easy for firms to enter the market and to leave it. This keeps the number of firms large.
Option (4) Selling costs do not exist. — True. Selling costs are spending to push sales, such as advertising. Every firm sells an identical product at one price, so a firm has no need of them.

NCERT (2026-27): “4.1 Perfect Competition: Defining Features …A perfectly competitive market has the following defining features:

1. The market consists of a large number of buyers and sellers

2. Each firm produces and sells a homogenous product. i.e., the product of one firm cannot be differentiated from the product of any other firm.

3. Entry into the market as well as exit from the market are free for firms.

4. Information is perfect.

…These features result in the single most distinguishing characteristic of perfect competition: price taking behaviour. From the viewpoint of a firm, what does price-taking entail? A price-taking firm believes that if it sets a price above the market price, it will be unable to sell any quantity of the good that it produces. On the other hand, should the set price be less than or equal to the market price, the firm can sell as many units of the good as it wants to sell.…

…Since the market price is fixed at p, we obtain a horizontal straight line that cuts the y-axis at a height equal to p. This horizontal straight line is called the price line. It is also the firm’s AR curve under perfect competition The price line also depicts the demand curve facing a firm. Observe that the demand curve is perfectly elastic.…”