Which condition is essential for a large number of firms to exist in a perfectly competitive market?
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Free entry and exit
- If firms can freely enter the market, more firms will join when profits are high, increasing competition.
- If firms can freely exit, unprofitable firms will leave, preventing long-term losses.
- This ensures that the market has many firms, maintaining perfect competition.