Understanding Perfect Competition Dynamics

Which of the following is a key characteristic of a perfectly competitive market?

• Few sellers

• Homogeneous products

• High barriers to entry

• Price makers

In the short run, a firm in a perfectly competitive market can make:

• Only normal profit

• Only supernormal profit

• Supernormal, normal, or losses

• Only losses

What happens to profits in a perfectly competitive market in the long run?

• Firms continue to make supernormal profits

• Firms make normal profits

• Firms incur losses

• Firms exit the market

Which of the following best describes the movement from short run to long run in a perfectly competitive market?

• Entry and exit of firms lead to zero economic profit

• Firms increase prices to cover costs

• Firms decrease output to increase profits

• Government intervention is required to maintain competition

In a perfectly competitive market, the demand curve faced by an individual firm is:

• Downward sloping

• Upward sloping

• Perfectly elastic

• Perfectly inelastic

Which of the following is NOT a characteristic of perfect competition?

• Perfect information

• Differentiated products

• Free entry and exit

• Many buyers and sellers

In the long run, if firms in a perfectly competitive market are making losses, what is likely to happen?

• New firms will enter the market

• Firms will continue to make losses indefinitely

• Firms will exit the market

• Firms will increase prices

How does perfect competition impact a firm's ability to set prices?

• Firms can set any price they choose

• Firms are price takers

• Firms can set prices above market equilibrium

• Firms can set prices below market equilibrium