Understanding Perfect Competition and Market Dynamics

In a perfectly competitive market, what is the economic profit of a firm in the long run?

• Negative economic profit

• Zero economic profit

• Positive economic profit

• Variable economic profit

What type of demand curve does a price taker in a perfectly competitive market face?

• Perfectly inelastic

• Relatively elastic

• Relatively inelastic

• Perfectly elastic

Why is Farmer Roy's demand curve considered perfectly elastic?

• He has a monopoly in the market

• He faces a downward-sloping demand curve

• He can sell any quantity at the market price

• He can set his own prices

What happens to the market price and quantity of corn when the demand for ethanol increases?

• Price decreases, quantity decreases

• Price increases, quantity decreases

• Price increases, quantity increases

• Price decreases, quantity increases

How does an increase in the price of corn affect the supply of cereal?

• Demand increases

• Supply decreases

• Supply increases

• Demand decreases