Firms in Competitive Markets - What is a Competitive Market?

Which of the following is not a characteristic of a competitive market?

• Buyers and sellers are price takers.

• Each firm sells a virtually identical product.

• Free entry is limited.

• Each firm chooses an output level that maximizes profits.

Who is a price taker in a competitive market?

• buyers only

• sellers only

• both buyers and sellers

• neither buyers nor sellers

When a firm has little ability to influence market prices it is said to be in a

• competitive market.

• strategic market.

• thin market.

• power market.

In a competitive market, the actions of any single buyer or seller will

• have a negligible impact on the market price.

• have little effect on market equilibrium quantity but will affect market equilibrium price.

• affect marginal revenue and average revenue but not price.

• adversely affect the profitability of more than one firm in the market.

Because the goods offered for sale in a competitive market are largely the same,

• there will be few sellers in the market.

• there will be few buyers in the market.

• only a few buyers will have market power.

• sellers will have little reason to charge less than the going market price.

Free entry means that

• the government pays any entry costs for individual firms.

• no legal barriers prevent a firm from entering an industry.

• a firm's marginal cost is zero.

• a firm has no fixed costs in the short run.

Which of the following industries is most likely to exhibit the characteristic of free entry?

• nuclear power

• municipal water and sewer

• dairy farming

• airport security

When buyers in a competitive market take the selling price as given, they are said to be

• market entrants.

• monopolists

• free riders.

• price takers.

When firms are said to be price takers, it implies that if a firm raises its price,

• buyers will go elsewhere.

• buyers will pay the higher price in the short run.

• competitors will also raise their prices.

• firms in the industry will exercise market power.

Why does a firm in a competitive industry charge the market price?

• If a firm charges less than the market price, it loses potential revenue.

• If a firm charges more than the market price, it loses all its customers to other firms.

• The firm can sell as many units of output as it want to at the market price.

• All of the above are correct.