#1
In perfect competition, what is the shape of the demand curve faced by a single firm?
Horizontal
ExplanationDemand curve is perfectly elastic due to many competitors offering identical products.
#2
Which of the following is a characteristic of perfect competition?
Homogeneous products
ExplanationProducts are identical among firms, offering no basis for differentiation.
#3
What happens to market price in the long run in perfect competition?
It remains constant
ExplanationFirms enter and exit until economic profits reach zero, stabilizing price.
#4
What role does marginal cost play in determining the output of a perfectly competitive firm in the short run?
It determines profit maximization
ExplanationFirms produce where marginal cost equals marginal revenue to maximize profit.
#5
What is the condition for long-run equilibrium in a perfectly competitive market?
Price equals average total cost
ExplanationFirms earn zero economic profit, with price covering all costs.
#6
What is the profit-maximizing rule for a firm in perfect competition?
Produce where marginal cost equals marginal revenue
ExplanationProfit maximized where additional revenue equals additional cost.
#7
What is the characteristic feature of perfect competition regarding entry and exit of firms?
Low barriers to entry and exit
ExplanationFirms can enter or exit freely without significant obstacles.
#8
Which of the following is a condition for perfect competition?
Perfect knowledge
ExplanationFirms and consumers have complete information on prices and products.
#9
In perfect competition, how does a firm respond to a price above the equilibrium?
Increase production
ExplanationFirms increase production to capitalize on higher prices and profit.
#10
What happens to the number of firms in the long run in a perfectly competitive market if firms are earning economic profits?
New firms enter the market
ExplanationProfit attracts new firms until economic profit reaches zero.
#11
What concept does allocative efficiency in perfect competition refer to?
Allocating resources to the most valued uses
ExplanationResources distributed to meet consumer preferences at equilibrium.
#12
How does an increase in demand impact the short-run equilibrium price and output in perfect competition?
Price and output both increase
ExplanationIncreased demand leads to higher prices and greater output.
#13
What happens to the equilibrium quantity produced in the short run in perfect competition when a technological advancement reduces production costs?
Increases
ExplanationTechnological advancement allows firms to produce more at lower costs.
#14
What is the relationship between marginal cost and marginal revenue at the profit-maximizing level of output in perfect competition?
Marginal cost equals marginal revenue
ExplanationProfit is maximized when additional revenue equals additional cost.