Perfect Competition

What is the main characteristic of demand in perfect competition?

• Perfectly inelastic

• Partially elastic

• Completely inelastic

• Perfectly elastic

How is the equilibrium price determined in perfect competition?

• Government intervention

• Monopoly power

• Random selection

• Market demand and supply curves

Explain the concept of 'shut down point' in perfect competition.

• Maximum point on the average variable cost curve

• The point where the firm is producing at full capacity

• The point where the firm is making the most profit

• Minimum point on the average variable cost curve

What happens to the price and quantity in the long run in perfect competition when firms are making economic profits?

• Price decreases and quantity remains the same

• Price increases and quantity decreases

• Price decreases and quantity increases

• Price remains the same and quantity decreases

What is the impact of new firms entering the market in perfect competition?

• Lower prices for consumers

• No impact on prices

• Higher prices for consumers

• Decreased competition in the market

Describe the relationship between marginal cost and average total cost in perfect competition.

• The marginal cost curve is always below the average total cost curve

• The marginal cost curve intersects the average total cost curve at its lowest point.

• The marginal cost curve and average total cost curve do not intersect

• The marginal cost curve is always above the average total cost curve

What is the role of price in determining the level of output in perfect competition?

• Price is determined by the level of output in perfect competition

• Price determines the level of output by equating it with the marginal cost in perfect competition.

• Price has no impact on the level of output in perfect competition

• Price is set by the government in perfect competition

Explain the concept of 'normal profit' in perfect competition.

• The profit earned when a firm is in a perfect competition

• Maximum level of profit necessary to keep a firm in the industry

• The profit earned when a firm is in a monopoly

• Minimum level of profit necessary to keep a firm in the industry

How does the demand curve for a perfectly competitive firm look like?

• Upside-down U shape

• Horizontal line at the market price

• Vertical line at the market price

• Randomly fluctuating line

What are the conditions for a market to be considered as perfectly competitive?

• Limited number of buyers and sellers, different products, imperfect information, restricted entry and exit, and market power

• Huge number of buyers and few sellers, diverse products, no information, no entry and exit, and complete market power

• Large number of buyers and sellers, identical products, perfect information, free entry and exit, and no market power

• Small number of buyers and sellers, similar products, partial information, controlled entry and exit, and some market power