Understanding Perfectly Competitive Markets

In a perfectly competitive market, why can't a firm set its own prices?

• Because the government regulates prices

• Because firms have identical products

• Because demand is always higher than supply

• Because firms have monopoly power

What happens in a perfectly competitive market when firms are making a profit?

• New firms will enter the market

• Demand will decrease

• Firms will exit the market

• Prices will increase

What is the result of long-run equilibrium in a perfectly competitive market?

• Firms have high barriers to entry

• Firms experience constant losses

• Firms make no economic profit

• Firms make a significant economic profit

Why do firms continue to operate even when making no economic profit?

• They are covering their opportunity costs

• They are not aware of their financial situation

• They expect future profits

• They have no other options

What is the difference between economic profit and accounting profit?

• Accounting profit includes opportunity costs, while economic profit does not

• Both include opportunity costs

• Neither includes opportunity costs

• Economic profit includes opportunity costs, while accounting profit does not