Question

One characteristic of a perfectly competitive market is that individual firms

		engage in product differentiation
		are free to enter or exit an industry in the long run
		earn positive economic profits in the long run
		advertise to increase market share
		face a downward-sloping demand curve

Answer 1

In a perfect competitive market there are no barriers to entry and exit i.e. there is free entry and exit in the long run. So, option (b) is the correct answer

All firm in a perfect competitive market sells homogeneous goods and because there are full information available in the market they cannot increase their market share by advertising. Thus option (a) and (d) are incorrect.

If in the long run they earn positive profit then new firm enters which result in increase in market supply and thus resulted in decrease in market price till they each starts earning zero profit. Also each perfect competitive firm faces perfect elastic or horizontal demand curve. Thus option (c) and (e) are incorrect.

Hence, the correct answer is (b) are free to enter or exit an industry in the long run.