Perfect Competition

In a perfectly competitive market, why does an individual firm have no control over the price of its product?

• The government regulates all prices in competitive markets

• Consumers are not price-sensitive in competitive markets

• The firm's product is differentiated from its competitors

• The firm's output is too small to influence the market price

What is the primary decision a firm in a perfectly competitive market must make to maximize profit?

• How to differentiate its product from competitors

• What price to charge for its product

• How much quantity to produce at the given market price

• How to reduce the number of competitors in the market

In a perfectly competitive market, why is a firm's marginal revenue equal to the market price?

• Because the firm can influence the market price

• Because the firm's costs are constant

• Because the firm is small relative to the total market and cannot affect the price

• Because marginal revenue always equals marginal cost

A firm is currently producing at a level where marginal revenue is greater than marginal cost. To maximize profits, what should the firm do?

• Decrease production

• Increase production

• Maintain current production level

• Shut down operations

Why doesn't it always make sense for a firm to immediately enter an industry when the market price rises above average cost?

• Because firms are risk-averse and prefer to wait for higher profits

• Because there may be significant entry costs that need to be recovered

• Because the government regulates when firms can enter new industries

• Because existing firms in the industry will always lower prices to prevent entry

When a firm is operating at a point where price is below average cost but equal to marginal cost, what does this indicate about the firm's financial situation?

• The firm is maximizing its profits

• The firm is breaking even

• The firm is minimizing its losses in the short run

• The firm should immediately exit the industry

A competitive firm maximizes profit by choosing

• Price.

• Quantity.

• Both price and quantity.

• Either price or quantity, but not both.

• None of the above.

A competitive market has which of the following characteristics?

• Lots of small-scale sellers

• Lots of small-scale buyers

• A product that is similar across sellers

• All of the above.

In a competitive market, sellers sell their product

• At the world price.

• Just below the world price.

• Just above the world price.

• At a price dependent on the quantity chosen.

The economic definition of profit differs from the accounting definition of profit in that the economic definition includes

• Fixed costs.

• Variable costs.

• Opportunity costs.

• Sunk costs.

• None of the above.