There's also a huge list of rules about things you're not allowed to do to make your car faster. F1 is quite far from simply building the fastest car, it's building the fastest car that adheres to this long list of 'arbitrary' rules and regulations.
This stopped being true a long time ago, as the best, fastest machines we could make were very deadly in an accident. If you know about F1, you know that Ayrton Senna, at the moment probably the best driver in the field, died on track. But people forget that he wasn't the only driver that died on that track that weekend: Roland Razemberger died in qualifying the day before! And one could argue that by then, they've already made significant changes to regulations to make the cars safer: Go see what happened when one of the old ground effect cars decided to lift off.
F1's regulations are very strict and completely artificial, just not quite so strict as to allow only 1 car. This is both for safety and cost control. In Schumacher's days, why did ferrari dominate so much? Because they have a private circuit, a much larger budget than anyone, and the racers flew back to the factory to spend long day after long day of testing right next to where the parts where being manufactured. We'd not have a full grid if anyone had to compete with budgets like that
