Perfect Competition- Microeconomics 3.7

Which of the following is a characteristic of a perfectly competitive market?

• High barriers to entry and exit

• Firms produce differentiated products

• Many small firms

• Firms are price makers

In a perfectly competitive market, if the market price is above a firm's average total cost (ATC) in the short run, what will be the immediate outcome for the firm?

• The firm will incur economic losses.

• The firm will earn economic profits.

• The firm will shut down operations.

• The firm will produce at a quantity where marginal revenue equals marginal cost, but still make zero economic profit.

If firms in a perfectly competitive industry are earning economic profits in the short run, what will happen in the long run?

• Existing firms will increase their prices, leading to higher profits.

• New firms will enter the market, causing the market supply to increase and prices to fall.

• Existing firms will exit the market, causing the market supply to decrease and prices to rise.

• The government will intervene to regulate prices and prevent excessive profits.

What two types of efficiency are achieved by perfectly competitive firms in long-run equilibrium?

• Technical and dynamic efficiency

• Allocative and productive efficiency

• Static and X-efficiency

• Managerial and cost efficiency