Multiple choice

Which of the following is not a condition of perfect competition?

  1. A large number of firms

  2. Perfect mobility of factors

  3. Informative advertising to ensure that consumers have good information

  4. Freedom of entry and exit into and out of the market
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Perfect competition requires many firms, perfect mobility of factors, and free entry/exit. Informative advertising implies differentiation and imperfect information - in perfect competition, products are homogeneous and information is perfect by assumption, making advertising unnecessary and inconsistent with the model. Advertising creates brand awareness and preference, contradicting homogeneous products.

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