#1
Which of the following is a characteristic of a perfectly competitive market?
Products are identical.
ExplanationUniformity of products distinguishes this market structure.
#2
In a perfectly competitive market, what happens if a firm raises its price above the market price?
It will lose all of its customers.
ExplanationFirms cannot influence the market price; deviation results in loss of market share.
#3
What is the defining feature of price-taking behavior in a perfectly competitive market?
Firms must accept the market price as given.
ExplanationFirms lack pricing power; adhere to prevailing market price.
#4
Which of the following is an example of a perfectly competitive market?
The market for wheat
ExplanationNumerous buyers and sellers dealing with identical products typify this market.
#5
What is the relationship between marginal cost and marginal revenue in a perfectly competitive market in the short run?
Marginal cost equals marginal revenue.
ExplanationProfit maximization occurs when marginal cost equals marginal revenue.
#6
In a perfectly competitive market, what happens if a firm produces where price is below average total cost in the short run?
The firm shuts down.
ExplanationPrice below average total cost leads to losses, prompting shutdown.
#7
What is the slope of the demand curve in a perfectly competitive market?
Downward sloping
ExplanationReflects the inverse relationship between price and quantity demanded.
#8
Which of the following is NOT a condition for a market to be perfectly competitive?
Barriers to entry
ExplanationAbsence of entry impediments characterizes perfect competition.
#9
What is the long-run outcome for firms in a perfectly competitive market in terms of economic profit?
Firms earn zero economic profit.
ExplanationCompetitive forces erode profit, leading to equilibrium at zero.
#10
Which of the following is NOT a characteristic of a perfectly competitive market?
Product differentiation
ExplanationHomogeneous products exclude product differentiation.
#11
Which of the following statements is true regarding the long-run equilibrium of a perfectly competitive market?
Firms produce at minimum average total cost.
ExplanationEconomic forces drive firms to produce at the lowest cost point.
#12
What happens to the price of a good in a perfectly competitive market if there is an increase in demand?
Price increases.
ExplanationIncreased demand results in a higher equilibrium price.
#13
In the long run, in a perfectly competitive market, what happens to economic profit?
It decreases to zero.
ExplanationEconomic forces drive profit to nil in equilibrium.
#14
What role does the concept of marginal revenue play in price-taking behavior?
Firms set prices based on marginal revenue.
ExplanationPrice equals marginal revenue under perfect competition.
#15
Which of the following is a potential long-run outcome of a perfectly competitive market?
Constant returns to scale
ExplanationConstant input-output proportions signify equilibrium.
#16
In the long run, what happens to the number of firms in a perfectly competitive market if there are economic profits?
New firms enter the market.
ExplanationEconomic profits attract new firms, increasing market competition.
#17
How does the concept of free entry and exit affect long-run equilibrium in a perfectly competitive market?
It ensures firms earn zero economic profit.
ExplanationOpen market entry eliminates economic profits.