#1
In a perfectly competitive market, how many firms are there?
Many
ExplanationPerfectly competitive markets have a large number of firms.
#2
In a perfectly competitive market, what happens to the price if a firm increases its output?
The price decreases
ExplanationAn increase in output leads to a decrease in price in perfectly competitive markets.
#3
What happens to the price in a perfectly competitive market if all firms experience an increase in production costs?
The price decreases
ExplanationAn increase in production costs leads to a decrease in price in perfectly competitive markets.
#4
What is a key feature of product differentiation in a perfectly competitive market?
Identical products
ExplanationProduct differentiation in a perfectly competitive market means products are identical.
#5
What is the primary reason for the horizontal demand curve facing a firm in a perfectly competitive market?
Identical products
ExplanationThe horizontal demand curve is a result of the identical nature of products in a perfectly competitive market.
#6
What is a characteristic feature of a perfectly competitive market?
Homogeneous products
ExplanationProducts in a perfectly competitive market are identical or homogeneous.
#7
In a perfectly competitive market, how does a firm maximize its profit?
By producing at the point where marginal cost equals marginal revenue
ExplanationProfit maximization occurs when a firm produces where marginal cost equals marginal revenue.
#8
What is a key assumption of a perfectly competitive market?
Homogeneous products
ExplanationThe assumption of identical or homogeneous products is essential in perfectly competitive markets.
#9
How does a firm in a perfectly competitive market determine its output level to maximize profit in the short run?
By producing where marginal cost equals marginal revenue
ExplanationOutput for profit maximization is set where marginal cost equals marginal revenue in the short run.
#10
What is the profit-maximizing rule for a firm in a perfectly competitive market in the short run?
Produce where marginal revenue equals marginal cost
ExplanationShort-run profit maximization occurs where marginal revenue equals marginal cost.
#11
What is the shape of the demand curve facing a firm in a perfectly competitive market?
Horizontal
ExplanationThe demand curve for a perfectly competitive firm is perfectly elastic or horizontal.
#12
In the long run, what happens to the economic profit of firms in a perfectly competitive market?
It decreases to zero
ExplanationEconomic profit tends to zero in the long run for perfectly competitive firms.
#13
What is the entry and exit condition for firms in a perfectly competitive market in the long run?
Low entry barriers and low exit barriers
ExplanationFirms can enter or exit easily in the long run due to low barriers.
#14
What is the relationship between price and marginal revenue for a firm in a perfectly competitive market?
Equal
ExplanationPrice equals marginal revenue for a perfectly competitive firm.
#15
In a perfectly competitive market, what happens to a firm's economic profit in the long run?
It decreases to zero
ExplanationEconomic profit diminishes to zero for firms in the long run in a perfectly competitive market.