Perfect Competition: Characteristics and Behavior of Firms

Question 1

In a perfectly competitive market, how do firms maximize profits?

Accepted Answer

Producing output where marginal cost equals marginal revenue

Answer

Setting prices above marginal cost

Answer

Producing output until total revenue equals total cost

Answer

Ignoring the impact of other firms on the market price

Question 2

In a perfectly competitive market, the equilibrium price is primarily determined by:

Accepted Answer

The interaction of supply and demand

Answer

Government regulations

Answer

Firms' costs of production

Answer

The size of the market

Question 3

To maximize profits, a firm in a perfectly competitive market should produce the output level where:

Accepted Answer

Marginal revenue equals marginal cost

Answer

Total revenue equals total cost

Answer

Average revenue equals average cost

Answer

Fixed costs are minimized

Question 4

Which of the following markets is most likely to exhibit the characteristics of perfect competition?

Accepted Answer

Wheat market

Answer

Automobile industry

Answer

Oil industry

Answer

Residential real estate market

Question 5

How does a price floor set above the equilibrium price affect a perfectly competitive market?

Accepted Answer

Creates a surplus

Answer

Eliminates economic profits

Answer

Reduces the number of buyers

Answer

Increases the price elasticity of demand

Question 6

Analyze the potential effects of government regulation on perfect competition. Discuss both the advantages and disadvantages of government intervention in perfectly competitive markets.

Accepted Answer

Government regulation can potentially hinder perfect competition by creating barriers to market entry and exit for businesses.

Accepted Answer

Government regulation can promote perfect competition by enforcing antitrust laws and preventing monopolies.

Answer

Government regulation always promotes perfect competition by removing barriers to market entry and exit.

Answer

Government intervention is never required in perfectly competitive markets because these markets are naturally self-regulating.

Question 7

Which characteristic is NOT present in a perfectly competitive market?

Accepted Answer

Price manipulation

Answer

Numerous buyers and sellers

Answer

Identical products

Answer

Unobstructed entry and exit

Question 8

In a perfectly competitive market, firms are known as:

Accepted Answer

Price takers

Answer

Price setters

Answer

Monopolists

Answer

Oligopolists

Question 9

In a perfectly competitive market, the equilibrium price is established at the:

Accepted Answer

Intersection of supply and demand curves

Answer

Government-mandated price

Answer

Lowest cost of production

Answer

Highest market share

Question 10

In the short term, a perfectly competitive firm can experience:

Accepted Answer

Profits or losses

Answer

Only profits

Answer

Only losses

Answer

Break-even

Question 11

Which market exemplifies perfect competition?

Accepted Answer

Agricultural commodities market

Answer

Automobile industry

Answer

Pharmaceutical industry

Answer

Cable television industry

Question 12

For a perfectly competitive firm to maximize profits, output should be set where:

Accepted Answer

Marginal cost equals marginal revenue

Answer

Average cost equals average revenue

Answer

Price equals marginal revenue

Answer

Total revenue is maximized

Question 13

In perfect competition, firms often engage in:

Accepted Answer

Non-price competition

Answer

Cartel formation

Answer

Product differentiation

Answer

Price collusion

Question 14

How can technological innovation impact perfect competition?

Accepted Answer

Create new products and increase competition

Answer

Create barriers to entry and reduce competition

Answer

Have no impact on competition

Answer

Decrease consumer welfare

Question 15

How does technological progress typically affect the equilibrium in a perfectly competitive market?

Accepted Answer

It shifts the supply curve to the right, leading to a higher equilibrium quantity and a lower equilibrium price.

Answer

It shifts the demand curve to the right, resulting in a higher equilibrium price and a higher equilibrium quantity.

Answer

It shifts both the supply and demand curves to the left, resulting in a lower equilibrium quantity and a lower equilibrium price.

Answer

It has no impact on equilibrium quantity or price.

Question 16

How does perfect competition enhance consumer well-being compared to other market structures?

Accepted Answer

Lower prices and increased supply benefit consumers.

Answer

Firms maximizing profits does not directly benefit consumers.

Answer

Innovation and technological advancements are not direct outcomes of perfect competition.

Question 17

Which of the following is a fundamental characteristic of a perfectly competitive market?

Accepted Answer

Many buyers and sellers

Answer

Significant barriers to entry

Answer

Firms produce heterogeneous products

Answer

Price-setting power

Question 18

In a perfectly competitive market, firms are considered to be what type of price determinant?

Accepted Answer

Price takers

Answer

Oligopolists

Answer

Monopolists

Answer

Price makers

Question 19

Which of the following is a condition that must be present for a market to be considered perfectly competitive?

Accepted Answer

Homogeneous products

Answer

Significant product differentiation

Answer

High barriers to entry

Answer

Price-setting power held by individual firms

Question 20

In the long run, firms in a perfectly competitive industry will earn:

Accepted Answer

Zero economic profit

Answer

Variable economic profits

Answer

Negative economic profit

Answer

Positive economic profit

Question 21

Which of the following is a direct implication of perfect competition?

Accepted Answer

Efficient allocation of resources

Answer

Limited consumer choice

Answer

Artificially inflated prices

Answer

Low quality products and services

Question 22

In perfect competition, profit-maximizing firms produce an output level where:

Accepted Answer

Marginal cost equals marginal revenue

Answer

Average revenue equals total cost

Answer

Marginal revenue equals average cost

Answer

Total cost is minimized

Question 23

In the short run, a perfectly competitive firm

Accepted Answer

Can make losses or profits depending on market conditions

Answer

Must always make profits

Answer

Must always make losses

Answer

Cannot produce any output

Question 24

Which of the following factors would NOT shift the supply curve of an industry in perfect competition?

Accepted Answer

A change in consumer preferences

Answer

A change in input costs

Answer

A change in technology affecting production

Answer

A change in the number of firms

Question 25

In a perfectly competitive market, a decrease in demand will lead to:

Accepted Answer

A shift of the market equilibrium to a lower price and quantity

Answer

A shift of the market equilibrium to a higher price and quantity

Answer

No change in the market equilibrium

Question 26

Perfect competition is often considered a benchmark for market efficiency because it:

Accepted Answer

Promotes optimal allocation of resources and maximizes consumer welfare

Answer

Eliminates innovation and technological progress

Answer

Prevents firms from earning positive profits

Question 27

Which of the following is a defining characteristic of a perfectly competitive market?

Accepted Answer

Many small firms

Answer

Differentiated products

Answer

Few large firms

Answer

Significant barriers to entry and exit

Question 28

In a perfectly competitive market, firms are known as 'price takers'. This means that:

Accepted Answer

Firms have no influence over the prevailing market price

Answer

Firms must adhere to the pricing decisions of larger firms

Answer

Firms can set their own prices independently

Question 29

In the short run, a perfectly competitive firm will produce the output level where:

Accepted Answer

Marginal cost equals marginal revenue

Answer

Profit is maximized

Answer

Average total cost is minimized

Answer

Average variable cost is minimized

Question 30

In the long run, a perfectly competitive firm will typically:

Accepted Answer

Earn zero economic profit

Answer

Minimize loss

Answer

Break even

Answer

Maximize profit

Question 31

In a perfectly competitive market, the equilibrium point is determined by the intersection of:

Accepted Answer

Supply and demand curves

Answer

Cost and revenue curves

Answer

Demand and marginal cost curves

Answer

Average total cost and marginal revenue curves

Question 32

Which of the following is a potential advantage of perfect competition?

Accepted Answer

Efficient allocation of resources

Answer

Inefficient production

Answer

Lack of innovation

Answer

High prices

Question 33

Which of the following is a potential disadvantage of perfect competition?

Accepted Answer

Lack of product differentiation

Answer

Low prices

Answer

Absence of barriers to entry

Answer

Inefficient resource allocation

Question 34

Which of the following is a defining characteristic of perfect competition?

Accepted Answer

Large number of buyers and sellers

Answer

Differentiated products

Answer

Significant barriers to entry

Answer

Imperfect information

Question 35

In a perfectly competitive market, firms can influence the market price of their product because:

Accepted Answer

They are price takers.

Answer

They are able to collude with other firms.

Answer

They have control over the supply of the product.

Answer

They have market power.

Question 36

What is the primary objective of a firm operating in perfect competition?

Accepted Answer

Maximize profit

Answer

Minimize costs

Answer

Increase market share

Answer

Provide the highest quality product

Question 37

In a perfectly competitive market, the demand curve facing a firm is:

Accepted Answer

Perfectly elastic

Answer

Downward sloping

Answer

Horizontal

Answer

Upward sloping

Question 38

What will happen to a firm in perfect competition that consistently incurs losses?

Accepted Answer

Exit the market

Answer

Seek government assistance

Answer

Increase production

Answer

Raise prices

Question 39

Which of the following is a potential benefit of perfect competition?

Accepted Answer

Efficient allocation of resources

Answer

High prices for consumers

Answer

Government control of the market

Answer

Subsidies for producers

Question 40

In a perfectly competitive market, the supply curve for an individual firm is:

Accepted Answer

Horizontal

Answer

Vertical

Answer

Downward sloping

Answer

Upward sloping

Question 41

Perfect competition is considered a theoretical ideal because:

Accepted Answer

It is difficult to find markets that perfectly meet all its assumptions.

Answer

It leads to excessive government intervention in the market.

Answer

It is not possible to measure the efficiency of firms in perfect competition.

Question 42

Which of the following is **NOT** a characteristic of perfect competition?

Accepted Answer

Firms have market power

Answer

Large number of buyers and sellers

Answer

Free entry and exit

Answer

Homogeneous products

Question 43

In a perfectly competitive market, the demand curve that the firm faces is:

Accepted Answer

Perfectly elastic

Answer

Perfectly inelastic

Answer

Downward-sloping

Answer

Upward-sloping

Question 44

What is the rule for profit maximization for a firm in perfect competition?

Accepted Answer

Produce where marginal cost (MC) equals price (P)

Answer

Produce where marginal revenue (MR) equals zero

Answer

Produce where average revenue (AR) equals average cost (AC)

Answer

Produce where total cost (TC) is minimized

Question 45

Which of the following is the long-run equilibrium outcome for firms in a perfectly competitive market?

Accepted Answer

Zero economic profit

Answer

Increasing market share

Answer

Monopoly power

Answer

Exit from the market

Question 46

What is the role of entry and exit in a perfectly competitive market?

Accepted Answer

Ensure that firms earn zero economic profit in the long run

Answer

Prevent new firms from entering

Answer

Protect existing firms from competition

Question 47

In a perfectly competitive market, the supply curve of an individual firm is its:

Accepted Answer

Marginal cost curve

Answer

Average cost curve

Answer

Total cost curve

Answer

Average revenue curve

Question 48

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Firms have market power

Answer

Many buyers and sellers

Answer

Homogeneous products

Answer

Low barriers to entry and exit

Question 49

In a perfectly competitive market, individual firms are considered:

Accepted Answer

Price takers

Answer

Monopolists

Answer

Price makers

Answer

Oligopolists

Question 50

In the long run, perfectly competitive firms will earn:

Accepted Answer

Zero economic profit

Answer

Supernormal profit

Answer

Normal profit

Answer

Loss

Question 51

Which of the following is an implication of perfect competition for the market?

Accepted Answer

Efficient allocation of resources

Answer

High prices

Answer

Limited consumer choice

Answer

Market dominance

Question 52

Which of the following government interventions is most likely to promote a perfectly competitive market structure?

Accepted Answer

Antitrust laws

Answer

Quotas

Answer

Price floors

Answer

Subsidies

Question 53

In a perfectly competitive market, the demand curve facing an individual firm is:

Accepted Answer

Perfectly elastic

Answer

Upward sloping

Answer

Perfectly inelastic

Answer

Downward sloping

Question 54

Which of the following is a benefit of perfect competition for consumers?

Accepted Answer

Consumer surplus

Answer

Producer surplus

Answer

Barriers to entry

Answer

X-inefficiency

Question 55

If a firm in a perfectly competitive market has an average total cost curve of ATC = 10 + 0.2Q and the market price is $20, what is the profit-maximizing output level for this firm?

Accepted Answer

Q = 50

Answer

Q = 25

Answer

Q = 75

Answer

Q = 100