Quiz on Perfect Competition

Which of the following is a point of difference between perfect and monopolistic competition?

• In perfect competition, the firms produce goods that are identical in all aspects, but under monopolistic competition, the goods are not identical

• There are many barriers to entry in perfect competition but monopolistic competition does not have any such problems

• There are many barriers to entry in monopolistic competition but perfect competition does not have any such problems

• Under perfect competition, there are many firms of relatively smaller size, but that is not the case for monopolistic competition

The market type which is known as perfect competition is __________.

• Dominated by fierce advertising campaigns

• Marked by firms continuously trying to upgrade their products so that buyers prefer their products to that of their competitors’

• Almost free from competition and companies earn large profits

• Highly competitive and companies find it challenging to earn economic profits in the long run

Which of the following factors is not a characteristic of perfect competition?

• Well-informed buyers and sellers about product prices

• Individual firms spend a considerable amount on advertising

• No restrictions on entry into or exit from the industry

• A large number of buyers and sellers

Which of the following markets have the fewest number of firms?

• Monopoly

• Perfect competition

• Monopolistic competition

• Oligopoly

Under perfect competition, a business has to make different types of decisions, both for the short run and the long run. Which of the following is a short run decision?

• The levels of output that can maximise profits

• Spending on advertising and sales promotion

• The price to charge buyers for a product

• Whether to enter or exit an industry

If many sellers are selling an identical product, what is the implication of this scenario?

• The sellers do not have the power to change the price of a product

• Chaos in the market

• The market supply curve is horizontal

• Significant losses for all the sellers

Which of the following is true if the demand for a seller’s product is perfectly elastic?

• The seller has zero incentive to sell their product below the market price

• The market has many substitutes for a seller’s product

• The seller will not be able to sell any output if they try to price their product above the market price

• All of the above

Which of the following is true about a price-taking firm?

• It is in contact with rival firms to fix the best price that all of them can charge

• It is asking the government to set a fixed price for its product

• It can set the price of a product at any level that it wants

• It is unable to influence the price of the product that it sells

Which of the following is a barrier to entry?

• A government regulation that restricts a monopoly firm from earning an economic profit

• A rule or regulation that protects a firm from new competitors arriving in the market

• The presence of firms within a market that are incurring economic losses, something that deters new companies from entering

• Anything that establishes a barrier to the expanding of output within a market

Which of the following will create a natural monopoly in the market?

• A requirement for a government license before a firm can sell the product or service

• A technology that helps a firm to produce at a lower average cost than two or more firms

• Any exclusive right granted to a firm for supplying a product or service

• The ownership of all available units that are required for the raw materials