Understanding Perfect Competition and Market Dynamics

What is a key characteristic of a perfectly competitive market that allows firms to enter easily?

• Government regulations

• High barriers to entry

• Elastic demand

• Unique product offerings

In a perfectly competitive market, why might a firm experience short-term losses?

• Expanding into new markets

• Increasing product differentiation

• Lowering production costs

• Raising prices above the market level

What happens to a firm in perfect competition if the demand falls below the average variable cost?

• It merges with a competitor

• It continues to operate at a loss

• It raises prices to cover costs

• It shuts down temporarily

How does a firm in perfect competition achieve long-term equilibrium?

• By increasing market share

• By reducing production

• By making normal profits

• By differentiating its products

What is a potential advantage of perfect competition for consumers?

• Higher prices

• Limited product choices

• Efficient allocation of resources

• Monopoly power