In perfect competition, how do firms determine the level of output for profit maximization?

• By producing at the level where marginal cost is greater than marginal revenue

• By producing at the level where average total cost is minimized

• By producing at the level where marginal cost equals marginal revenue

• By setting prices lower than the competition to increase market share

What is allocative efficiency in a monopoly?

• When the monopoly produces at a level where price equals marginal cost

• When the monopoly sets the price as high as possible to maximize profits

• When the monopoly produces at a level where price equals average total cost

• When the monopoly restricts output to increase prices

How is productive efficiency achieved in perfect competition?

• By producing at the level where price is less than average total cost

• By producing at the level where price equals average total cost

• By producing at the level where marginal cost equals marginal revenue

• By producing at the level where average total cost is minimized

What happens in the long run equilibrium in perfect competition?

• Firms earn supernormal profits due to barriers to entry.

• Firms only earn normal profits as any supernormal profits are competed away.

• Firms continue to earn supernormal profits as new firms cannot enter the market.

• Firms incur losses as the market price is driven below average cost.

Why can't monopolies achieve allocative efficiency?

• Because they produce where marginal cost is less than price

• Because they always produce at the minimum of the average total cost curve

• Because they are regulated by the government

• Because they have no competition

In perfect competition, why is the demand curve perfectly elastic for an individual firm?

• Because firms can sell as much as they want at the market price

• Because firms have market power and can set prices

• Because the products are differentiated

• Because there are barriers to entry

What does it mean for a monopoly to have a downward-sloping demand curve?

• It can sell more units only by lowering the price

• It can increase price without losing any customers

• It faces perfect competition

• It operates at maximum efficiency at all times

Why is it difficult for new firms to enter a market dominated by a monopoly?

• Because of perfect competition

• Because of high barriers to entry such as patents, control of resources, or government regulation

• Because monopolies operate at a loss

• Because new firms do not want to compete

In the context of perfect competition, what leads to the exit of firms in the long run?

• Earning supernormal profits

• The inability to cover variable costs

• An economic loss

• An increase in demand for the product

How does a monopoly determine its profit-maximizing level of output?

• By producing where total revenue equals total cost

• By producing where marginal revenue equals marginal cost

• By producing where price equals average total cost

• By setting the price as high as possible regardless of output level