Micro Unit 3, Question 11- Perfect Competition

The video explains how market prices are set for identical products, emphasizing the role of perfectly elastic demand curves. It discusses the impact of low barriers to entry on market dynamics, leading to long-run equilibrium where firms make no economic profit but do achieve accounting profit. The distinction between economic and accounting profit is clarified, highlighting the inclusion of opportunity costs in economic profit.

In a perfectly competitive market, why can't firms set their own prices?

• Due to high production costs

• Because they have unique products

• Because the market sets the price

• Due to government regulations

What happens in the long run if firms in a perfectly competitive market are making losses?

• Prices will increase

• Demand will decrease

• Firms will enter the market

• Firms will leave the market

In the long run, what is the economic profit for firms in a perfectly competitive market?

• Zero

• Positive

• Depends on the firm

• Negative

What is the main difference between economic profit and accounting profit?

• Economic profit includes opportunity costs

• Accounting profit includes opportunity costs

• Economic profit is always higher

• Accounting profit is always lower

Why might a firm continue to operate even if it makes no economic profit?

• It is a monopoly

• It has no other options

• It is subsidized by the government

• It is making accounting profit