Answer to Question #250021 in Microeconomics for andrew

Question

Which of the following is not a characteristic of a competitive market?

Answer 1

The complete question is:

Which of the following is not a characteristic of a competitive market?

A

There are many buyers and sellers in the market.

B

The goods offered for sales are largely the same

C

Firms generate small but positive super normal profits in the long run.

D

Firms can freely enter or exit the market.

Solution

Correct option is

C

Firms generate small but positive super normal profits in the long run.

Perfect competition is a type of market where there are huge number of buyers and sellers who deals in the same type of product due to which no individual unit is able to influence the price of the product. 

Under perfect competition, there is freedom of entry and exit of firms. Therefore, when there is super-normal profits or losses the firms in the market enter and exit respectively due to which the firms in the industry only earn normal profits in the long run.