What is perfect competition?

• A. Firms are few and collude
• B. Firms have market power and set prices
• C. Firms face many competitors that sell identical products
• D. A single firm dominates the market

Answer: (C)

Perfect competition is a market structure where many firms compete by selling an identical product, so no single firm can influence the market price. Because there are so many competitors and the products are homogeneous, each firm is a price taker and the market price is determined by overall supply and demand, not by any one firm. Consumers are indifferent between suppliers, so competition focuses on efficiency and cost minimization. In the long run, free entry and exit ensure profits are driven toward zero. This description matches a situation with many competitors selling identical products, rather than a market with few firms that collude, firms that can set prices, or a single dominant firm.