Question

A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants is a​ _______ market.

A. potential
B. cooperative
C. contestable
D. perfectly competitive

Answer 1

The correct answer is option D.

Step-by-step explanation:

A perfectly competitive market is a market structure where there is no limitation or restriction on entry and exit of firms in the market. All potential firms can easily enter the market and all existing firms can easily exit.

There are a large number of sellers in the market that sell homogenous products. Because of free entry and exit, these firms face competition from potential entrants. Since there is a large number of firms, these firms are price takers.