#1
Which of the following is a characteristic of a competitive firm?
Price taker
ExplanationFirms in a competitive market accept the market price as given.
#2
In a perfectly competitive market, firms are:
Sellers of identical products
ExplanationIn perfect competition, products are homogenous, so firms sell identical products.
#3
Which of the following is a characteristic of a competitive firm's demand curve?
Perfectly elastic
ExplanationA competitive firm faces a perfectly elastic demand curve at the market price.
#4
What happens to a competitive firm's marginal revenue as it produces more units?
It remains constant
ExplanationMarginal revenue for a competitive firm remains constant.
#5
Which of the following is NOT a condition for perfect competition?
Price discrimination
ExplanationPrice discrimination is not a characteristic of perfect competition.
#6
In the short run, a competitive firm will shut down if price is below its:
Average total cost
ExplanationIf price falls below average total cost, a competitive firm will shut down.
#7
What is the profit-maximizing rule for a competitive firm in the short run?
Produce where marginal cost equals marginal revenue
ExplanationTo maximize profit, a competitive firm should produce where marginal cost equals marginal revenue.
#8
In the long run, a competitive firm will earn zero economic profit because:
Price equals average total cost
ExplanationIn the long run, price in a competitive market equals average total cost, resulting in zero economic profit.
#9
Which of the following is a characteristic of long-run equilibrium for a competitive firm?
Price equals marginal cost
ExplanationIn long-run equilibrium, price equals marginal cost for a competitive firm.