Pure Competition

Perfect competition is best described as a market with

• Diverse buyers and sellers

• Monopoly control

• 
  Few firms producing essentially the same product

• Many firms producing the same product

Answer explanation

Perfect competition is best described as a market with many firms producing the same product, leading to a situation where no single firm has control over the market.

A factor that makes it difficult for firms to enter a market is called...

• impediment barrier

• barrier to entry

• market obstacle

• access restriction

Answer explanation

A factor that makes it difficult for firms to enter a market is called a barrier to entry. Example, governmental restrictions, high entry cost

The price charged by a perfectly competitive firm is

• Higher than the market price

• Set by the government

• Lower than the market price

• Equal to the market price

Answer explanation

The price charged by a perfectly competitive firm is equal to the market price, as firms in perfect competition are price takers and cannot influence the market price.

All of the following are characteristics of perfect competition EXCEPT

• Many buyers and sellers

• Similar or exact products

• Perfect knowledge of market information

• Presence of advertising

• Absence of barriers to entry

Answer explanation

The correct choice is 'Presence of advertising' as perfect competition is characterized by the absence of advertising. Since there's no product differentiation, advertising doesn't provide any competitive advantage in influencing consumer choice.

MR DARP stands for

• Marginal Revenue

• Demand

• Average Revenue

• Price

• All of the above

Answer explanation

MR DARP stands for Marginal Revenue, Demand, Average Revenue, and Price, so the correct answer is 'All of the above'. "MR DARP" means that a company should produce or hire more of an input (like labor) as long as the additional revenue it generates (MR) is greater than or equal to the additional cost (MC), and also as long as the additional revenue product (RP) is greater than or equal to the additional cost. In other words, a company should keep producing more as long as the extra revenue it earns from each additional unit is at least as much as the extra cost of producing that unit, and as long as the extra revenue generated by the additional input is at least as much as the cost of that input.

If the corn industry is perfectly competitive and the market price for corn is $3 per bushel. How many bushels will Farmer Miller sell at $3.50 per bushel?

• 
  more than he would at a price of $3 per bushel

• just as many as he would at $3 per bushel

• some, but fewer than he would at $3 per bushel

• None

• more info is needed about the prices of other farmers

Answer explanation

At a market price of $3 per bushel, Farmer Miller will not sell any bushels at $3.50 per bushel as the market price is lower.

Why is a farmer's market a place of perfect competition?

• There are many buyers and sellers with an identical product

• There will always be competition as people need to eat farm products

• Farmers negotiate prices before hand to set a market price

• Farmers enjoy competing, as it raises prices

What does perfect information mean in the context of perfect competition?

• Incomplete knowledge of market conditions by all market participants

• Complete knowledge of prices but not costs by all market participants

• Limited knowledge of prices and costs by some market participants

• Complete knowledge of prices, costs, and market conditions by all market participants.

Answer explanation

Perfect information in perfect competition means complete knowledge of prices, costs, and market conditions by all market participants.

What type of market might be closer to perfect competition?

• Utilities

• Telecom

• Technology

• Agriculture

Answer explanation

Agriculture markets are closer to perfect competition due to the large number of buyers and sellers, homogeneous products, and ease of entry and exit for producers.

In a perfectly competitive industry, a permanent decrease in demand initially brings a lower price, economic _____

• loss, and entry into the industry

• profit, and entry into the industry

• loss, and exit from market

• profit, and exit from the industry

Answer explanation

In a perfectly competitive market, a permanent decrease in demand leads to excess supply, causing firms to lower prices. Despite selling more units at the reduced price, the decrease in revenue outweighs any cost savings, resulting in economic losses. The decrease in demand results in excess supply (quantity supplied exceeds quantity demanded) at the original price P₁, prompting firms to lower prices to clear the surplus.