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Question
Assertion (A): There is no restriction on the entry and exit of the firms in the perfectly competitive market.
Reason (R): The perfect competition market is characterised by the sellers being price takers and not price makers.
Options
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
Assertion (A) is true, but Reason (R) is false.
Assertion (A) is false, but Reason (R) is true
Solution
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
Explanation:
The ability of enterprises to enter and quit the market is unrestricted in perfect competition. Firms enter the market because they are attracted to profit, and they exit when the current firms suffer losses.
Hence, Firms profit normally in the long run. Because industry is made up of a huge number of companies. As a result, the industry's pricing is determined by market forces of demand and supply, and the firm must accept it. As a result, the company is a taker, not a creator of prices.
