Discussion
Which of the following statement(s) is/are true for the assumption of Pure Competition ?
Select the correct answer from the codes given below :
(i) The firm in pure competition is a price taker
(ii) The firms produced homogeneous products
(iii) This market includes a large number of firms
(iv) The firms produce heterogeneous products
Answer: D
The assumptions are (i), (ii) and (iii).
Pure competition assumes a large number of firms (iii), each too small to affect the price, so each is a price taker (i), and all of them produce a homogeneous product (ii), so buyers have no reason to prefer one seller.
Heterogeneous products (iv) belong to monopolistic competition, where product differentiation gives each firm some control over its price. Every option including (iv) is therefore wrong, and the options with only two statements leave out a valid assumption.
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