Which of the following lists includes three competitive factors that impact only firms operating in perfectly competitive markets?

• A. Price-taking behavior, free entry and exit, homogeneous products
• B. Advertising, monopoly power, government regulation
• C. Number of buyers, product differentiation, barriers to entry
• D. Collusion, price discrimination, limited information

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of a perfectly competitive market. These include many buyers and sellers, homogeneous products, free entry and exit, and firms being price takers.
2. Step 2: Identify the factors that specifically apply to firms in perfectly competitive markets. Price-taking behavior means firms accept the market price without influence.
3. Step 3: Recognize that free entry and exit allow firms to enter or leave the market without restrictions, which is a key feature of perfect competition.
4. Step 4: Note that homogeneous products imply that all firms sell identical products, so no firm can charge a higher price based on product differences.
5. Step 5: Compare these factors to the other options, which include elements like monopoly power, product differentiation, and collusion, none of which are characteristics of perfect competition.