#1
In a perfectly competitive market, firms are considered price ________.
takers
ExplanationFirms in perfect competition accept the market price as given.
#2
What is the main characteristic of a perfectly competitive market?
Homogeneous products
ExplanationAll products are identical in a perfectly competitive market.
#3
In the short run, a perfectly competitive firm will continue to produce output as long as its marginal cost is ________ its marginal revenue.
less than
ExplanationFirms keep producing as long as MC < MR for profit maximization.
#4
What happens to a perfectly competitive firm in the long run if it is making economic losses?
It exits the market.
ExplanationFirms leave the market in the long run if they incur losses.
#5
What is the relationship between marginal revenue and price for a perfectly competitive firm?
Marginal revenue is equal to price.
ExplanationIn perfect competition, MR = P for each unit sold.
#6
In the long run, in a perfectly competitive market, economic profits will be driven to ________.
zero
ExplanationProfit tends to zero due to free entry and exit.
#7
In a perfectly competitive market, what happens if a firm raises its price above the market price?
It sells fewer units.
ExplanationConsumers opt for cheaper alternatives.
#8
What is the shape of the marginal cost curve for a perfectly competitive firm?
U-shaped
ExplanationThe marginal cost curve initially decreases then increases.
#9
What is a characteristic of a perfectly competitive market in terms of information?
Complete information
ExplanationAll market participants have full information.
#10
Which of the following is a barrier to entry in a perfectly competitive market?
Product differentiation
ExplanationDifferentiation inhibits perfect competition.
#11
What is the profit-maximizing rule for a firm in a perfectly competitive market?
Produce where marginal cost equals marginal revenue.
ExplanationMC = MR condition maximizes profit.
#12
What is the relationship between price and marginal cost in a perfectly competitive market in the long run?
Price equals marginal cost.
ExplanationLong-run equilibrium condition in perfect competition.