Perfect Competition

Price takers are individuals in a market who:

• select a price from a wide range of alternatives.
• select the lowest price available in a competitive market.
• select the average of prices available in a competitive market.
• have no ability to affect the price of a good in a market.

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, Corn Flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

• many buyers and sellers.

• a standardized product.

• complete information.

• ease of entry and exit.

The demand curve for a perfectly competitive firm is:

• perfectly inelastic.
• perfectly elastic.
• downward sloping.
• relatively but not perfectly elastic.

In the short run, a perfectly competitive firm produces output and breaks even if:

• the firm produces the quantity at which P < ATC.
• the firm produces the quantity at which P = ATC.
• the firm produces the quantity at which P > ATC.
• the firm produces the quantity at which P = (TR/Q + TC/Q) × Q.

• Shut Down
• Take loss but stay open
• Normal Profit
• Positive Economic Profit

This perfect competitor will maximize profits at what output level?

• A
• B
• C
• D

At price G, the area of which rectangle represents total revenue for the profit-maximizing perfect competitor?

• 0GKC
• 0FJC
• FGKJ
• EFJH

Perfect competition is best described as a market with

• few firms producing essentially the same product

• many firms producing essentially the same product

• many firms producing very different products

• few firms producing very different products

Which is not a requirement for a market to have perfect competition?

• Diverse buyers and sellers participate in a market

• Sellers offer the same products

• Sellers can freely enter and exit the market

• Consumers and producers are informed about products

A factor that makes it difficult for firms to enter a market is called...

• a barrier to entry

• an obstacle to entry

• a block to entry

• an impediment to entry