Perfect competition

'The number of firms in an industry and the way in which those businesses behave'

What is being described here?

• Market structure

• Perfect competition

• Monopoly

• Concentration ratio

Which of the following is a characteristics of a perfectly competitive market?

• Firms are price takers

• Non-homogenous product

• High barriers to entry

• Imperfect information

Under perfect competition, firms are profit maximisers, therefore they will produce an output where...

• MR=MC

• AR=AC

• MR=AC

• AR=MC

In the long-run, a perfectly competitive firm will...

• Make normal profits

• Make supernormal profits

• Make subnormal profits

• Make accounting profit only

Draw a diagram showing a perfectly competitive firm operating in the long-run only.

Under perfect competition, when a firms generates supernormal profits it will...

• Incentivise new firms to join the market shifting supply in the market to the right

• Incentivise new firms to leave the market shifting supply in the market to the right

• Incentivise new firms to leave the market shifting supply in the market to the left

• Incentivise new consumers to join the market thus shifting demand to the right

Under perfect competition, new firms are incentivised to join a market when supernormal profits are being generated and they are able to do this because...

• There are no barriers to entry and there is perfect information

• There are no barriers to entry and there is imperfect information

• There are high barriers to exit and low start-up costs

• There are barriers to entry and there is perfect information

Under perfect competition, when sub-normal profits are being made in the short-run...

• Supply of firms in the market will shift to the left

• Supply of firms in the market will shift to the right

• The firms AR curve will shift down

• The firms AC curve will shift up

Under perfect competition, when sub-normal profits are being generated, firms will leave the market. They will leave the market because...

Where is allocative efficiency achieved on the diagram of a firm?

• Where AR=MC

• Where MC=MR

• Where AR=AC

• Where supply=demand