Which of the following is NOT a basic characteristic of pure competition?

• A. Firms are price takers
• B. There is free entry and exit in the market
• C. There are many buyers and sellers
• D. Products are differentiated

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of pure competition (perfect competition). It is a market structure characterized by several key features that define how firms and consumers interact.
2. Step 2: Identify the basic characteristics of pure competition, which typically include: (a) many buyers and sellers, (b) firms are price takers (no control over market price), (c) free entry and exit in the market, and (d) homogeneous (identical) products.
3. Step 3: Analyze each option given in the problem to see if it matches these characteristics. For example, 'firms are price takers' aligns with pure competition because no single firm can influence the market price.
4. Step 4: Recognize that 'products are differentiated' means products are not identical but vary in features or quality, which contradicts the assumption of homogeneous products in pure competition.
5. Step 5: Conclude that the characteristic 'products are differentiated' is NOT a feature of pure competition, making it the correct answer to the question.